As Danny Riley will note in this morning’s Opening Print, Wednesday’s price action was tough. Trading the S&P 500 or its futures contract was not an easy task. The latter shed 2.1% in the session, dropping more than 87 points.
The Dow didn’t fare much better. The futures contract dumped 675 points, falling 1.97% on the day. That followed Tuesday’s session, where the index fell 485 points and after it made new all-time highs on Monday.
The undercurrents in the market have been tough, with some groups performing well and some groups performing dreadfully (looking at you, growth stocks).
Are we hitting a turning point though?
Trading the S&P 500
I was talking to Danny Riley last week on the phone. It was Thursday. He told me, “When the market’s down Monday, Tuesday and Wednesday, you just gotta pick your spot and take a shot on Thursday or Friday.”
He was right and called it out right in the Mr. Top Step Trading Room. That was a big pay day for many members as we saw an absolute ripper on Thursday afternoon going into the close.
Could we be setting up for the same thing this week?
The ES hit new all-time highs on Monday before reversing and closing lower by almost 42 points or about 1%. Not great price action. That was followed by two big down days as the contract now rests right on the 50-day moving average.
That has me thinking perhaps we could be setting up for a rebound in the next day or two.
It’s possible we break Thursday’s Globex low and potentially test down into 3,975. However, I am looking at the index from the long side this morning.
Danny Riley is Mr. Top Step’s 39-year veteran of the CME trading floor and ran one of the largest S&P desks on the floor. Here’s what he’s thinking each morning before the stock market opens.
Trading the Dow
The Dow has a similar setup. We have a nice three-day flush to the downside, with the fourth day resulting in a test of the 50-day moving average.
Let’s see if the Dow can find its footing here.
We just about filled that gap from April 1st, but again, if we break the Globex low, it’s possible we see this 33,000 area tested in earnest.
The bottom line: We’re fresh off all-time highs from earlier this week. The CPI reading spooked investors and that spooking may carry into the weekend. However, at this point it would be a bigger worry (to me, at least) if we didn’t have inflation. Have we all forgotten what the year-over-year comps look like?
I am looking to buy into the rebound today and/or tomorrow in a limited-risk fashion. Let’s see if the bulls can make a stand here.
As we all know, there’s no crystal ball when it comes to trading stocks, options or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk free for 30 days.
