CPI, Retail Sales and Triple Witching Week
We have two days before we must buckle up.
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Our View
Despite the tech rebalance earlier this year, the problem with the market is that there are still 7 to 10 stocks that control the indices. When the Nasdaq bellwethers Nvidia and Tesla are weak, it is hard to charge higher without some drops. When FAANG wavers, the S&P tends to do so as well.
Long story short, tech is still driving the narrative in US stocks.
I always say there are three parts to the trading day and it could not have been more clear during Thursday night’s Globex session and Friday’s day session.
This week, it all boils down to three things: The consumer price index (CPI) report on Wednesday, retail sales for August on Thursday and the September triple witching expiration on Friday.
Our Lean
According to the Stock Trader’s Almanac, September typically opens weak and closes weaker.
September used to open strong, but the S&P 500 has declined in 9 of the last 15 1st trading days for the month. With fund managers tending to sell underperforming positions ahead of the end of the Q3, there have been some nasty selloffs near month-end over the years.
The Monday of the September triple witching week — in other words: today — has the Nasdaq down 14 of the last 23 occasions (about 61%). In the expiration week of 2001, the Dow lost 1,370 points or -14.3%, the 12th worst weekly point loss ever and the 6th weakest week overall.
Our Lean: With the rollover going on, we could be in for a tricky week. While we think higher prices are on tap, we must also point out that at the late-day low on Friday, the ES was only about 90 points (or just 2%) above last month’s low.
As you can see above, September is not the friendliest month. That said, we want to sell the early rallies and buy the 10 to 20-point pullbacks with tight stops. If the ES takes out the 4434 low, that could change the equation.
MiM and Daily Recap
ES 15-min recap
The ES traded down to 4443, rallied up to 4459.50 and opened Friday’s regular session at 4455.25. After the open, the ES traded 4454.25 and rallied up to 4467.50 at 9:42, then traded down to the 4460 level and ground its way up to 4477.50 at 10:29. After the high, I posted this in the room:
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IMPRO: Dboy :(10:04:28 AM) : ES 4478 big level
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IMPRO: Dboy :(10:32:22 AM) : 4477.50 high
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IMPRO: Dboy :(10:32:41 AM) : quick rejection
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IMPRO: Dboy :(10:33:03 AM) : that the early high
The ES sold off down to the 4464 level at 11:01, traded up to a lower high at 4475.50 at 11:41 and then slid down to 4461.50 at 1:14. From 12:52 to 2:07, the ES remained in a back-and-fill pattern and then at 2:08 it rallied up to 4468.75 and quickly sold off down to 4457.25. From there, it traded back down to 4455.25 at 2:20, rallied up to 4461.25 and then traded down to 4451.50 at 3:31 as the early imbalance showed $385 million to buy. The ES traded up to 4458.25 at 3:48 and traded 4457.50 as the 3:50 cash imbalance showed $382 to buy, traded up to 4462.75 and traded 4461.50 on the 4:00 cash close. After 4:00, the ES traded up to 4467.25 and settled at 4463.50, up 6.25 points or 0.14%.
In the end, the ES sold off for three days and rallied on options FRYday — there is a correlation. In terms of the ES’s overall tone, you just can’t make this stuff up: rally in the first part of the day, sell off for 3.5 hours, then rally in the final minutes of the day. In terms of the ES’s overall trade, volume was low: 181k traded on Globex, and 893k traded on the day session for a total of 1.083 million contracts traded.
I know it’s all fun and games, but there is a ton of truth that revolves around the Thursday lows. The PitBull told me about this over 30 years ago and with all the volume and increased options open interest, small directional moves of 20 to 50 points cause large margin calls.
Technical Edge
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NYSE Breadth: 56% Upside Volume
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Nasdaq Breadth: 48% Upside Volume
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Advance/Decline: 53% Advance
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VIX: ~$13.75
ES — September Contracts
4434 is last week’s low and the 61.8% retrace of the recent rally. That needs to hold for bulls to keep conviction.
ES daily
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Pivot: 4477.50
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Upside Levels: 4491, 4504 (more broadly, 4493-4503), 4523-25
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Downside levels: 4460, 4444, 4432-35, 4406-10
NQ — September Contracts
~15,396 is the two-day high in the NQ. Bulls want to clear that level and the 50% retrace at 15,410 to continue hig
NQ Daily
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Pivot: 15,395 to 15,410
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Upside Levels: 15,470, 15,525-550, 15,650
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Downside levels: 15,300, 15,255, 15,135
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.
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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 — Trimmed ¼ at $112.50+ and ¼ at $115+. Break-even stop and can sniff for $119-$120 for next trim.
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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