Bulls Are in Control, But How Sustainable Is the Current Rally?

Buy-the-Dips remains in play.

Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.

Our View

While my bias has clearly been to buy the pullbacks and look for higher prices, I have to admit that I am not overly bullish here — but I also can’t say the ES isn’t going higher. Right now the markets are overlooking all the gloom and doom. I have said many times that if you look at a larger timeframe or a two-year chart of the S&P, it looks like a big back-and-fill pattern.

Is this just another upside run that will end as another dead-cat bounce or is the rally actually sustainable? I think the answer is yes and no — meaning that I do not doubt the ES can go higher.

From Wednesday’s low to Friday’s high, the ES rallied 107 points, but the NQ has rallied a stunning 802 points (and almost 1000 points when incorporating the rally on Globex).

One of the things the PitBull has always said is that the US is the number one in technology and always will be. The Nasdaq has clearly been the honey hole where huge amounts of money are pouring into. I know after such a big push that the odds of a drop increase but as we go into the summer, lower volume may favor the upside.

Good or bad, it doesn’t really matter what we think, the ES has been taking bad news and making good off it. History has shown us that eventually the markets recover despite curing the problems. Like in the 2008 Credit Crisis — the more quantitative easing the government did, the more the S&P soared. The trillions of dollars the Federal Government throws around acts like a back stop.

Guess what? I am writing this during market hours and the ES just made a new high at 4217.50. To surmise, I think the markets have rallied enough to see a pullback, but I don’t think the buy-the-dips trade is over.

Our Lean

The PitBull recently asked me if the ES was going to 4300. I think the answer to that is, if the overall price action of selling off, rallying, then back-and-fill continues, so will the move to the upside.

I know I have made a lot of bold predictions, but right or wrong there are still seven months left in 2023 and to think everything will just go status quo is probably not the right mindset.

Our lean is to sell the early rallies and buy the pullbacks. Remember, this week is a four-day work week and includes the last trading day of May and the first trading day of June, as well as the jobs report. At current levels, the NQ is also up about 7% in just a few days.

MiM and Daily Recap

The ES traded up to 4141.25 on Globex and opened Friday’s regular session at 4166.25. After the open, ES printed 4165.50 and then rallied almost 50 points up to 4211.75 at 10:43. After the high, the ES pulled back to the 4196 level at 11:26, stutter-stepped its way up to 4113.75 at 1:17, then pulled back to the 4204 level at 2:10 and then rallied up to a new high at 4221.25 at 3:15 as the early imbalances showed $707 million to sell.

The ES pulled back to 4213.75 at 3:32 and traded 4116.75 as the 3:50 cash imbalance showed $2.35 billion to sell. The ES traded 4213.50 on the 4:00 cash close and settled at 4219.25 on the 5:00 futures close, up 59.5 points or +1.43% on the day.

In the end it was straight up. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was decent at 1.67 million contracts traded. The Dow futures are 1,000 points off its high for the month and the S&P is at it.

As for Monday’s session, the ES opened at ~4240, gapping higher by about 20 points on reports of a debt deal being reached. It rallied to 4243.25 in the opening minutes, then fell to a low of 4221.50 at midnight ET, rallied 11 points to a lower high at 4232.50, traded down to a new low of 4220.25, and rallied a few points to close at 4224.75, up about 5.50 points from Friday’s close.

Technical Edge

The Nasdaq has been on fire and this morning’s pre-market rally will allow us to exit our longs in CRM (which reports earnings this week) and AMZN. Can the S&P get more participation to finally make a bigger move?

I know a lot has taken place in the last few years and that only a handful of names have driven a bulk of the gains in the index this year. But it’s pretty wild to think after all that, we’re exactly where we were two years ago.

Let’s look at the indices.

S&P 500 — ES

With the rally on Globex, the ES is going weekly-up over last week’s high of ~4223 after having gone monthly-up over the April high of ~4198 on Friday. However, it’s into a key area of resistance.

Traders want to know: Will this be a sell-the-news open to the debt ceiling or will the S&P run some buy stops?

SPY

We will finally fill the August gap at $421.22, but can the SPY maintain $420+ to get back to the $427.50 to $430 area? The latter is the 61.8% of the bear-market decline.

SPX

NQ

It can technically go to ~14,650, which is the 261.8% extension from the recent range. However, the 61.8% of the 2022 bear market is also at ~14,680, so that’s worth knowing for anyone carrying a long trade here.

QQQ

This weekly QQQ chart does not look all that bearish to me. The Q’s are +$5 this morning and are clearing $350 as we speak. Just keep in mind the 61.8% is at this area and we’re already up 5 weeks in a row and 11 of the past 13.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO and UBER.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders →

Relative weakness leaders →

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!