Bulls Need to Find Their Footing, Otherwise ES 4350 Is on Tap

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Our View

Wednesday was the first day of summer, but the summer trade started in early May and yesterday was an omen of things to come as more people take off for the summer and go on vacations.

I want to say something. This may be a good time to cut back and get some of the stuff done that you have been putting off. How many traders and/or newsletters will tell you that? You all know me…I say it how it is whether it’s good, bad, ugly or beautiful.

I actually have a floor trading card with my list of things to do. I hate having things that I know I need to do and keep putting them off. Maybe it’s all part of the Covid-19 pandemic.

There will be some notable moves this summer — I’m not saying there won’t be. But prior to this latest rally, the S&P was in a big multi-week chop fest, slicing and dicing traders up. I wouldn’t be surprised if we see more of that this summer. When we do, that’s the time to put trading aside for a bit and focus on other endeavors. Not only will you get other things done, but you will also likely save your financial and mental capital in the process.

Our Lean

Remember Our Lean from Monday: “Expect a multi-day pullback, but remember the predominant trend remains with the bulls.”

So far, that has been the case as the ES has retraced 50% of the recent rally and has dipped down to a key short-term trending moving average (the 10-day).

Let’s see how it handles it from here. Yesterday gave bulls a great dip-buy right off the open. Ideally, longs would have seen this bounce gain steam, but that doesn’t appear to be the case with the ES down 20-24 handles at 8:00 a.m. ET.

That said, we have the FRY-day options expiration.

Our Lean: We approach today’s action with a bit of skepticism. It’s hard to be a seller into the hole when the ES is down 20-30 handles. That may be good for a bounce shortly after the open, but the real risk is losing yesterday’s 4393 low and failing to regain it. If that’s the case, this pullback may have room down to 4375-78, then potentially 4350 sometime next week.

Another thing (and it may change today) but keep in mind the S&P has been bottoming in the opening hour and topping in the 1:30 to 2:30 window (usually toward the latter) all week.

MiM and Daily Recap

The ES traded down to 4393 on Globex and opened Thursday’s regular session at 4398. After the open, the ES sold off down to 4393.75 and then rallied up to 4409.50 at 10:00, pulled back to 4403.50, cranked its way up to 4418.50, then dropped down to 4398.50 at 10:44. I want to warn you that it’s been a total ‘CHOP FEST’ lately.

From the Mr. Top Step chat: IMPRO: Dboy :(11:42:05 AM): should trade 4420-22

After the drop the ES did a little back-and-fill under the VWAP and then rallied up to 4412.50, dropped down to 4407.25, rallied up to a lower high at 4415.25 at 12:38 and then sold off down to 4402.25. From there it rallied up to 4417 at 2:06, pulled back to 4413.25 and then popped up into the buy stops up to 4423.25 at 3:02.

The ES traded back down to 4411.50 at 3:35 as the early imbalance showed $776 million to buy. The ES traded 4420.25 as the 3:50 cash imbalance showed $3.50 billion buy and then retested the 4423.25 high at 3:55 and sold off down to 4418.24 at 3:55. The ES traded 4423.50 on the 4:00 cash close and traded up to 4425.50 and settled at 4425.25 on the 5:00 futures close, up 16 points or 0.36% on the day.

In the end, the ES sold off early and rallied late. In terms of the ES’s overall tone, it acted OK. In terms of the ES’s overall trade, volume was on the low side at 1.32 million contracts traded.

Technical Edge

A quick note on the S&P. We finally got our multi-day dip down to the 50% retracement and 10-day moving average. That set up a great buying opportunity off the open.

While yesterday proved fruitful for short-term buyers, the rug is being pulled a bit this morning. Traders can’t expect to simply buy the dips to the 10-day in the S&P every week and get away with it.

More or less, if we hold yesterday’s low, it will be an interesting setup next week. Regardless, I am keeping an open mind. Further weakness could bring in the prior breakout level and 21-day moving average (I’ll annotate this below). On the upside, a move above Thursday’s high opens up more upside.

S&P 500 — ES

Above yesterday’s high and the Globex high (~4427) opens up more upside. A break of 4393 that’s not quickly reclaimed opens the door down to ~4350.

SPX

SPY

Use yesterday’s $433.60 to $436.62 range to navigate today’s trade.

NQ

If support does not hold in this area — the 50% retrace and the 10-day ema — then we could be looking at a dip into the 61.8% retrace near 14,830, which is also into that prior resistance zone.

DOCN

For those that are leaning quite bullish, DOCN may be presenting an opportunity. A quick 6-day dip down into the prior breakout zone, Q1 high, 50% retrace and 10-week moving average.

Gave us a nice doji stick yesterday. Aggressive buyers will buy into the low-$38s. Conservative buyers will wait for a daily-doji-up over ~$40.

I would go with a half position in DOCN because it will be susceptible to ARKK and the broader market action, but it has been a recent leader on the growth-stock front. If this group falters, so will DOCN but if it bounces, this name will go for the ride.

GM

Nice pop in GM has me looking for a daily-up over $36.96 — call it $37 — today. That would come off the 10-day and 200-day moving averages.

If we get it, I would use a $36 to $36.25 stop-loss. First target is $37.50.

Open Positions

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

Go-To Watchlist

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

Relative strength leaders → (List is growing long!)

Relative weakness leaders →

Economic Calendar

Three Fed Heads today, but keep in mind, none of them are voting members this year.

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!