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Our View
The one thing I am leery of at the moment? The type of low we get.
So many traders seem to think it will be a V-bottom finish because that’s what they’ve been conditioned to look for over the last several years (namely 2018 and 2020).
It’s possible that it is a V-bottom.
However, in those scenarios, we had an accommodative Fed. This time we have the opposite. So it has me thinking we see a more traditional low (like basing sideways and/or retesting the low once it’s made). And so far, I haven’t seen those signs.
Our Lean
You have to roll with the punches. If trading was easy, we would all make a bunch of cash and buy a home on an island. It’s just not that easy and the people that say it is are full of shit.
As the PitBull says, “If you want to make the money you have to do the work” and good or bad, that’s what I do every day.
From Friday’s low to Monday’s high, the S&P 500 has rallied 175 points. One friend told me he thinks the ES is going to rally back to 4600. In all honesty, I can’t rule that out, but I say the odds are low for that to happen. I see 4200 as a cement wall.
Our lean: I want to sell the early rallies if the ES opens higher tomorrow. Today we are also using our MrTopStep trading rule that says “the ES tends to go sideways to lower after a big up day.” Should the ES open lower, I want to be patient. The price action has been fairly consistent with the rips and dips.
Daily Recap
The ES opened Tuesday’s regular session at 3931, sold off down to 3914.50, and rallied up to 3947 at 9:53, 32 points off the low. From there, it fell 40 points and made a new low at 3906.50 just after 10:00, rallied, made a higher low at 3908.75, and rallied up to a lower high at 3953.25 at 10:49.
The ES traded in a back-and-fill pattern above the vwap and then several buy programs hit, pushing the futures up to 3964.25 at 11:18, pulled back a bit, then traded up to 3979 at 12:09. After the push, the ES sold back off down to the vwap at 3942.75 at 13:21 and then rallied ~25 points up to another new high at 3976.75, dropped down to the VWAP at 3942.75 at 1:21, and then rallied up to a new high at 3980.50 at 2:47.
From the new high, the ES pulled back down to 3958.75 at 3:40, a 22-point drop. The ES traded 3960 as the 3:50 cash imbalance showed $881 million to buy and traded 3972.25 on the 4:00 cash close. It settled at 3978 on the 5:00 futures close, up 72 points or 1.8% on the day, but the fireworks started up in Globex, with the ES gapping down 26 points at 6:00 pm.
In the end, it was another solid day for the bulls. In terms of the ES’s overall tone, it was pretty in line with yesterday’s view to sell the early rallies and buy the pullbacks. In terms of the ES’s overall trade, volume was steady at 1.69 million contracts traded.
- Daily Range: 75.75 points
- H: 3982.25
- L: 3906.50
Technical Edge
- NYSE Breadth: 72% Upside Volume
- NASDAQ Breadth: 62% Upside Volume
- VIX: ~$29.20
Game Plan — S&P (ES and SPY), Nasdaq (NQ and QQQ), Dollar
Staying cautious with individual stocks — again sorry, but money saved is better than money lost! — and sticking mostly with index setups, bonds, USD, etc. There is a time and place for individual trades and we just hit XLE, XOM, and AR super well.
Patience is key for the ideal setups!
S&P 500 — ES
Monday was a solid day for the bulls, but a negative pre-announcement from SNAP is sucking the wind out of the futures right now.
On the upside, we were watching 3950. Above that put 3985 in play. It gave us 3982-and-change yesterday, as the 61.8% and 10-day stepped in as resistance. We can’t be surprised by that.
Now we have an interesting area on the downside.
Yesterday’s low is at 3906-ish and the Globex low is at 3909.75. So this area is going to be key. A break of 3900 and failure to reclaim it opens the door back up to 3855. Remember, we’re talking about a VIX near $30, so the whippy volatile nature can strike at any time.
On the upside — what do you know? — 3950 is key again this morning. Above it puts yesterday’s high in play, followed by 4000.
SPY
Longs will disagree, but I find where the SPY is failing to be beautiful. If we inverted that chart, traders would be “buying the dip” with confidence into the 10-day and 61.8%.
From here, Monday’s range is key. Below the low and $390 could open the door to $385 or lower.
Amid this morning’s rubble is an opportunity for the bulls. If they can shake off the early morning losses and go daily-up over $397.75, it opens the door to $400, then to the key $405 level.
Nasdaq — NQ
On the downside, 11,690 to 11,715 is key. A break of this level and failure to reclaim it opens the door to Friday’s low at 11,491.
On the upside, it’s becoming clear that 12,075 to 12,100 is key. That’s the three-day-high range. Now just above is the 10-day though, looming as potential resistance. If NQ clears these levels, the 61.8% is in play at 12,175-ish.
Above that is some “blue skies” if it can really get going, but we’re starting the day on defense, so let’s watch support.
QQQ
Similar situation in the QQQ — a three-day high from $293.80 to $294.50, as well as the 50% retrace.
If it can clear these measures — specifically $293.87, Monday’s high — then we could see the 61.8% and 10-day. Above these measures gets us $300, then $305.
Like everything else stock-related though, we’re starting the day on defense. See how we do with Monday’s low at $287.29. A break puts $285 in play, then $280-and-change.
U.S. Dollar — UUP
Yesterday I highlighted the DXY. With the same/similar setup, here’s UUP.
I wouldn’t hate a slight overshoot of the 10-day to fill the gap at $27.09.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Bold are the trades with recent updates.
We have been spanking the very select individual trades we have taken. For that, I’m super grateful! It shows that discipline wins out in a tough tape.
- AR — Powered right through our third target of $38.50 to $39. Kudos longs. AR goes back on the go-to list.
- XOM — this target hit “Above $92+ and feel free to trim as much as you want.”→ B/E stop on the remainder of the position ($89). $96 to $97 is a big extension area if it can really get going.
- XLE — gave us $84 in yesterday’s session → down to runners (⅓ to ¼ of a position) or all out here. Those with runners can look for $87 to $88 if XLE closes above $84.60. Above $79.75 and bulls can stay long this name.
Relative strength leaders (List is cleaned up and shorter!) →
- XLE — Above $79.75 and bulls can stay long this name.
- AR
- PEP
- KO
- MCK
- MRK
- BMY
- JNJ
- DOW
Economic Calendar
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.
