Bulls Need to Regain Key Levels or Risk More Losses
NVDA gained $100 billion in market cap yesterday
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Our View
The long and the short of yesterday’s trade was there was no downside attack and 4350 remains the low of the move.
Will that be the low and will the ES start going back up again? The answer is, it already has to some degree. When you add everything up, the overall price action can change on a dime.
That said, the pullback was steady and on Friday it became swift. We were due for an oversold bounce, but we need to see if this is a bounce that regains momentum or if it’s just a rally to be sold.
Our Lean
I do not know if this will hold up, but the ES rallied beyond the 40- to 60-point dead-cat bounce and rallied 71 points off the 4350 low. With last night’s Globex gains, the ES is now up about 85 points.
One of the mistakes I make is I sometimes get too bullish after a big rip, which tends to add to more mistakes. One of the things I have learned (and am still learning) is to take it one day at a time, don’t over-expect and don’t under-expect.
It’s kind of like my trading rule: Get in, get out and never fall in love with your position.
Our Lean: We expect higher prices. Above 4430 and I think the ES has a shot at 4460-4470. Buy the pullbacks.
MiM and Daily Recap
The ES traded up to 4407.50 on Globex and opened Monday’s regular session at 4395. After the open, the ES traded 4393.25 and then rallied up to 4405.75 at 9:40, traded back down to 4393.50 — 1 tick above the opening low — and rallied up to a new high at 4408.50. It was that high that set up a drop down to 4382.25 at 10:32. After the low, the ES back-and-filled from the 4383.50 level to the 4390 until a sell program hit that pushed the futures down to 4372.25 at 11:55 — the session low — and it was that low that set up the rally to intraday resistance at 4406.25.
After a small pullback down to 4400.75, the ES rallied up to 4421 at 3:44, pulled back a bit and traded 4416 as the 3:50 cash imbalance showed $1.77 billion to buy and traded down to 4410.50 at 3:59 and traded 4412.50 on the 4:00 cash close. After 4:00, the ES traded sideways and settled at 4409.50 on the 5:00 futures close, up 29.75 points or 0.68% on the day.
In the end, a lot of folks pointed to NVDA (+8.5%) as the reason for the move — by the way, that rally added ~$100 billion to its market cap! I said that could be part of it, but let’s face it, the index markets were oversold and due for a bounce. In terms of the ES’s overall tone it was firm but not as firm as the NQ (+1.64%). In terms of the ES’s overall trade, volume was lower: 204k traded on Globex and 1.11 million futures traded on the day session for a total of 1.32 million contracts traded.
I want to point something out. There really are 3 separate parts to the trading day. Part 1) the ES rallied up to 4407.50 on Globex, Part 2) the ES sold off down to 4383.50 and rallied up to 4408.50 in the opening hour and in Part 3) what the boys with the better theater seats do in the final hours. I’m not saying you can’t look at the full chart of the 23-hour session, I’m saying that if you broke them down, each part is usually different from each other.
Technical Edge
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NYSE Breadth: 49% Upside Volume
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Advance/Decline: 53% Advance
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VIX: ~$16.75
Couple of nice trims coming up today in QQQ and CRM.
SPY
It will be paramount to determine whether the bulls can regain some of the key moving averages and levels they lost in this selloff. If they do, the bull move remains intact. If they don’t, we could be vulnerable to more downside.
On the upside, $442 to $442.50 is key. That’s the 61.8% retrace of last week’s range (and the last down leg), as well as the 10-day moving average.
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Upside Levels: $442 to $442.50, $445
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Downside Levels: $440, $436 to $436.50
SPX
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Upside Levels: 4435, 4455-60
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Downside Levels: 4400, 4370-75
S&P 500 — ES Futures
After some early-session wobbling, the ES found its footing and now our 4435 to 4450 area is being reached this morning. In this area now, we can adjust our range to the 4445 to 4455 area — which encompasses the 10-day moving average and the 61.8% retracement.
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Upside Levels: 4445-55, 4465-70, 4482, 4493-4503
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Downside levels: 4420, 4395-4400, 4385
NQ
NQ into our 15,100 level during Globex. I would trim/take profit if long and look to see if 15,175 is doable.
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Upside Levels: 15,175, 15,270, 15,340
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Downside levels: 15,000, 14,940, 14,860
QQQ
On yesterday’s close, the QQQ neared the underside of the 10-day and 10-week moving averages, as well as a prior support/resistance (S/R) zone.
Making it a bit trickier is today’s gap-up above these measures into the $367 area (the 78.6%). With that, I’m inclined to reduce or exit our long QQQ call position, even if it can maintain momentum into the $370 to $372 area.
If we fade off the open, holding the $364 to $365 area is key.
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Upside Levels: $367, $370 to $372
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Downside levels: $364-65, $362.25
TNX
Don’t forget about 10-year yields (although it’s hard to at this rate). We need TNX to stay below 4.333 and ideally, start working below 4.20 and get down to 4.00 or lower.
Equities will have a hard time with a sustained rally if 10-year yields remain in an uptrend.
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.
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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If worried about a larger correction, can sell/trim north of $150 and look to re-establish lower (if we get it).
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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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CRM — long from ~$200 — Excellent gap-up open for a trim, then we got $208 to $210. Down to ½ position or less after a quick $10 move off the low.
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The Sept. calls are +50% from our entry and will be higher today. If we get 2x, we need to trim again, down to a ⅓ position
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QQQ — long this week or next week’s $360 calls — Trim ~½ on this morning’s gap-up. Trim down ¼ or less on Tuesday’s opening drive.
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These are 2x gainers and will be more on the open.
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Go-To Watchlist
Feel free to build your own trades off these relative strength leaders
Relative strength leaders →
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LLY
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Energy stocks — VLO, SLB, EOG
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AI stocks — NVDA, ADBE
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Mega cap tech — GOOGL, AMZN
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Select retail — ELF, LULU, COST
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BRK.B (new all-time highs)
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CAT
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RCL
Relative weakness leaders →
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DIS
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PYPL
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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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