https://www.wsj.com/articles/the-market-is-melting-down-and-people-are-feeling-it-my-stomach-is-churning-all-day-11653105601?mod=hp_lead_pos8

Have you ever felt like we are all just specks of dust when it comes to the trading game; That we are just food for the fire? 

Well, guess what? We are and late Friday was a very good example of just that. All day from the open to the final 45 minutes the ES languished off the lows of the day. Every rally was being sold. The chatter was that there were $1.9 trillion in SPY and SPX options expiring and the inability to hold any rallies made it an easy short trade. The ‘imbalance’ (MIM) must be for sale!

MrTopStep has a trading rule that says, “The S&P never does what most people want it to do when they want it.” and what did the S&P do? It rallied 72.5 points in 45 minutes. Shocking? Not at all. Based on all the extremes and knowing everyone was offside while you have almost $4 billion to buy that’s the result…A big, face-ripping rally.

Our View

While the markets can run, they cannot hide from last week’s brutal retail earnings by Walmart and Target. This week we have Macy’s, Costco and Dollar General reporting earnings. 

Lets face it, the big retail firms are trying to figure out how to adjust to the rise in inflation, lower sales and how to cut back on their workforce. I think this is one of the clearest looks at how the actual economy is going right now and when you throw in ~$5.00 gas, it just points to the economic pain people are going through. 

Our Lean 

It seems like people are getting bullish and looking for higher prices. Obviously, the S&P down 20% and the Nasdaq down over 30% brings out the buyers and bargain hunters. 

I think we can continue to bounce, but as of 7:30 a.m. ET, the ES was up about 130 points from Friday’s low. My guess is we see more big rips and dips. 

Our lean is to sell the early rallies and buy the pullbacks for now. 3980 and 4020 are the levels we are watching today. 

Daily Recap

The ES opened Friday’s regular session at 3936, traded 3939.25, sold off down to 3919, and then had one last rally up to 3941. After the pop, the ES fell apart. I could go all the pops and drops but there’s no point. The ES fell 133.50 points from the post-open high to the low at 3807.50 just after 1:30. That’s the new 2022 low, by the way. 

From there, the ES rallied 33.50 handles to 3843 at 1:50, pulled back ~28 points to 3815 2:30, but importantly, it did not make a new low. The ES did the dance once more time, rallying 35 points and pulling back 25 points, it again put in a higher low, this time at 3:10. Then it was off to the races.

The ES ripped 61 points into the 3:50 MIM reading, then rallied almost 20 points when the imbalance showed $3.8 billion to buy. The ES traded 3899.50 on the 4:00 cash and settled at 3902 on the 5:00 futures close, up  points 4.25 or +0.11% on the day. 

In the end, it was an ugly trading session regardless of the late rally. In terms of the ES’s overall tone, it was weak all day until 3:15 when the buy program hit. In terms of the ES’s overall trade, volume was on the high side at 2.31 million contracts traded, million contracts traded. 

  • Daily Range: 142 points
  • H: 3949.50
  • L: 3807.50

Technical Edge

  • NYSE Breadth: 45% Upside Volume
  • NASDAQ Breadth: 41% Upside Volume
  • VIX: ~$29.50

Last Friday, we had a silver lining regarding the worst start for the S&P 500 in more than 60 years. Today, there’s another. 

Last week the S&P 500 logged its seventh straight weekly decline. That had happened once in the last three decades and just three times since 1928. 

The bad news is that in two out of three of those occasions, the S&P went on to decline for an eighth straight week

The good news is that the index went on to put in the low during the correction in two out of three occasions. The other time (and most recent 7-week skid) came in March 2001 and went on to make new lows following 9/11. 

At the very least, each decline has marked an intermediate-term low. 

Interestingly, all four of these skids have either come in March or May. Huh. 

Game Plan — S&P (ES and SPY), Nasdaq (NQ and QQQ), Dollar, Bonds

S&P 500 — ES

Despite a new low in the ES on Friday, we do have some bullish divergence on the RSI. The ES is pushing higher in Globex, but continues to struggle with the 3950 area. 

Note that this area was support earlier in the month and then resistance on Thursday and Friday. It’s now also the 50% retrace from last week’s low to last week’s high.

If the ES can push through this area, 3985 is up next. Above 4000 and it can squeeze to the 4055 to 4070 area. 

On the downside, lose 3900 and 3855 and 3807 are back in play. 

SPY

For SPY, I”m watching $394.50 on the upside. A push through that level that doesn’t fade opens the door to the $397.50 to $398 zone. There we find Friday’s high, the 61.8% retrace, and the declining 10-day. 

If the SPY can push through that, it’s what I call “very deliberate price action” and puts $400+ in play. The top of the zone is $405 and the 21-day. If we get there, we’ll see how it’s behaving. 

On the downside, $389.50 is key. 

Nasdaq — NQ

It’s pretty clear that 12,050 has been key the last three days. Clear that level and 12,150 to 12,175 is on the table. Above that opens up even more upside, potentially into the 12,550 to 12,600 zone. 

On the downside, watch 11,850. Losing it and failure to reclaim it puts 11,725 in play, followed by the low in the 11,400’s.

U.S. Dollar — DXY

(Weekly setup). I’m not typically a big currency trader, but this pullback in DXY has our attention for a buy-the-dip scenario. 

UUP looks similar for those that prefer an equity/ETF approach. 

Bonds — ZB

ZB ended up going weekly-up from last week over 141.03. Now it’s trying to hold that level. If it can clear the two-day high at 142.02, the 143’s are in play up at the 50-day and prior resistance. 

See now that we hold 139.15.

Oil — XLE

XLE was a great trader last week. Let’s see if it can get us $84, while holding $79.75 on the downside. 

Energy has been the go-to sector this year. 

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.

  1. AR — Target No. 2 at $36 was hit. → Ideal final target is $38.50 to $39. Stop-loss raised to $33.40, for anyone still in this trade. 
  2. 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. 

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.

Disclaimer: Charts and analyses 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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