Bulls Are Looking for a Bounce After Slow Start to August
10-year yields need to settle down
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Not long after I met the PitBull he asked me a question, “Do you follow the winners?” I responded by saying, “Of course I do!” His response? “That’s good because I don’t want to work with anyone that follows the losers!”
Over the 14 years of running MrTopStep, I have seen just about every form of research and indicators and only a few caught my attention. When I hooked up with Rich Miller, I knew right away that his service was something I wanted to include in my trading tool box. Over the weekend while Rich was hiking in the Colorado mountains, he called me to say he had a study done, called, “The S&P Yearly and Monthly Road Map.”
He said that he wanted to give it away for free — so here it is.
I do not know how many hours it took to make this study, but I am sure it was a lot and as we spoke he said he noticed something he wanted to improve. As I have said, Rich has spent close to 15,000 hours of coding long-term statistics. This morning I encourage everyone to look over the study, share it with other traders and on Wednesday at 11:30 ET @HandleStats is offering a 30 minute webinar to break down the study and take questions. We will include a link on Wednesday morning.
Our View
I still think the ES goes lower, but two things stick out.
First, you cannot sell into the weakness. Second, while the ES has been going down, it’s by no means getting killed.
So far, the S&P 500 is down in 8 of the last 10 sessions, (while one of those “up” days was a gain of just 0.03% with a 1.3% fade from the session high to boot). In that span, we’ve had a peak-to-trough decline of just 3.16%.
They say when China goes down, the US does too — or that was the case when Evergrande collapsed, one of China’s largest real estate developers. Even though it “only” lost $81 billion, it created a lot of problems.
Now, Country Garden Holdings Co., run by one of China’s richest women Yang Huiyan, is coming under significant pressure. Shares are plunging and hitting a record low as trading in its bonds were halted. Earlier this month, worries of deflation in China sent US stocks lower.
I don’t know how all of this plays out, but China is the No. 2 economy in the world. It has been limping out of its post-Covid recovery and if it goes down, it will be felt.
Our Lean
The ES has been down 8 of the first 10 sessions in August (and flat in one of them). Does that mean there is a bounce/rally coming?
Yes, but — and there’s always a but — I think it should be sold.
According to the Stock Trader’s Almanac, the Monday before the August options expiration has the Dow up 17 of the last 27 occurrences (or up ~63%) and mid-August is stronger than the beginning and end of the month. However, Friday’s expiration date has been less bullish lately, with the Dow down 7 of the last 12 occasions — (and down 531 points in 2015). Here is a file for the Ned Davis expiration study.
For what it’s worth, PitBull also expects some form of a mid-month bounce to materialize.
Our Lean: Sell the rallies. Any 20 to 30 points in the ES and any 100 to 150 points in the YM. Specifically, I’m looking to sell the ES at ~4502 and the YM at ~35,490 (or better).
MiM and Daily Recap
The ES sold off down to 4464.50 on Globex early Friday morning and opened the regular session at 4465. After the open, the ES dropped down to 4459 at 9:33 and then rallied up to 4480.75 at 10:03, pulled back to 4471.50, made a 4493 double top at 10:41 then sold off to the VWAP at 4475.75 at 11:00. From there, it rallied up to a lower high at 4482.50, sold off down to 4469 at 11:35 and then rallied back up to 4485.25 at 12:08, before selling off down to 4470.25 at 1:59.
After the pullback, the ES made another double top at 4488.50 at 2:56, sold off down to the VWAP at 4477.50 at 3:12 and traded up to 4487.75 at 3:36, traded back down to the 4479 level at 3:47 and traded 4481 as the 3:50 cash imbalance showed $1.6 billion to sell, traded 4482 on the 4:00 cash close and settled at 4484.25 on the 5:00 futures close, down 2.5 points or -0.06% on the day.
In the end, the CPI and PPI reports caused an uptick in volatility Thursday and Friday and when you throw in a ton of shorts on an options FRYday, the above is what you get… WHIP-SAW! In terms of the ES’s overall tone, there were several times the ES tried to drag up the NQ, but it remained weak too, down 0.73%. In terms of the ES’s overall trade, volume was lower: 231K contracts traded on Globex and 1.227 million ES traded on the day session for a total of 1.459 million contracts traded.
Technical Edge
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NYSE Breadth: 53% Upside Volume
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Advance/Decline: 52% Advance
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VIX: ~$15.50
Note the near-$7 billion in MIM outflows over the last week and the near-$10 billion in the last two weeks.
SPY
When we look at the daily chart, the SPY correction looks like a mild pullback to the 50-day and 10-week moving averages, as well as back down to a prior breakout area. I’ve got to be honest here, it looks pretty standard.
SPY Daily
If we zoom into a 4-hour chart, you can see how the $451.50 level has become resistance, while the 10-ema has been downtrend resistance. Can the SPY break over the latter early this week to put the former back in play?
If not, and the SPY breaks $442 on the downside, the $437s could be in play.
SPY 4-hour
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Upside Levels: $448, $451 to $451.50, $453, $455.50
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Downside Levels: $442 to $443.50, $437.50
SPX
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Upside Levels: 4490-4500, 4527.50, 4540-45, 4567
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Downside Levels: 4435-44 (wide range), 4400, 4385-88
S&P 500 — ES Futures
4470 is more or less holding as support, while 4493-4503 has remained resistance. If we can push over the latter, the 4540s opens up as a possible upside target.
ES Daily
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Upside Levels: 4493-4500, 4512-15, 4540-42, 4550-60
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Downside levels: ~4465, 4450-55, 4425
NQ
NQ Daily
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Upside Levels: 15,300, 15,450-525
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Downside levels: 15,000-30, 14,750-850 (admittedly a wide range)
QQQ
Nice doji candle on Friday. If we get a daily-up rotation over $368, it puts the 50-day back in play, then a potential push up to the $371 to $372 zone.
On the downside, bulls want to see yesterday’s low of $364.69 hold. If it breaks, $363 to $364 is key.
QQQ Daily
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Upside Levels: $368, $371-$372, $374.50
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Downside levels: $364.69 (Friday’s low), $363-64
DXY
DXY Daily
Need the dollar to stop firming up to take some pressure off equities.
The good news? The DXY is into resistance. The bad news? A breakout could put $104+ in play.
The other issue is 10-year yields…
TNX
TNX Daily
The TNX has been robust lately, which is up over 5% in the last two days. The TNX (10-year yields) are firmly in a breakout, the question now is…how far will they run?
If TNX clears 4.20-21, it opens the door back up to the one-year high of 4.333. Note that the TNX topped out in late October, about a week after the S&P hit its 52-week low.
Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.
** = previously mentioned trade setup we are stalking.
*Some may be frustrated by the lack of setups lately. This is normal! Stay patience, keep your eye on the ball. They will materialize, but right now, it’s about protecting our gains!
Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN, CVS, AMD, TLT and YM.
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JPM — Many are long from $143-145. This is a longer term swing. Trimmed $153s, then $157.50+ on 7/24.
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Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
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ARKK — Long from ~$46 — trimmed near/at $50. Still carrying ⅔ to ¾ of position. Trim at ~$52
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Added back about ⅓ of our position around $45.50. Keep in mind, there could be room down to the 50-day moving average.
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WMT — Went weekly-up over ~$156 — Trimmed above $157.55 and then $158. Down to ½ position with trim at $160+, trimmed the add portion above $159 (a high of $161.19 on 8/7)
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Break-even stop, down to ¼ position or less at $162.50 or any high over Wednesday’s high of $162.10
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XOM — long from the monthly-up area at $108.50 — First ¼ or ⅓ trim is ~$112.50. Stops at $104.
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TLT — long from $95.63 (daily-up) — Trimmed ~½ at $97+. Looking for $97.50+ for next ¼ trim or full exit. Traders can also fish for the ~$98 gap fill
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**CRM — Would still love to see a dip down to the low-$200sc
Go-To Watchlist
Feel free to build your own trades off these relative strength leaders
Relative strength leaders →
(Lack of updates here but these names remain my top focus list!)
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LLY, CAH
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Energy stocks — VLO, SLB, EOG
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AI stocks — NVDA, ADBE, SMCI
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Mega cap tech — META, GOOGL, AMZN
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Select retail — ELF, LULU, COST
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Homebuilders ITB — TOL, KBH, DHI
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BRK.B (new all-time highs)
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CAT
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Cruise stocks — RCL, CCL
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DAL, DT, AMAT
Relative weakness leaders →
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DIS
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CF, MOS
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PFE (all vaccine gains now gone)
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EL, FL, DG
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!
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