Can the S&P shake off the bears and get to rallying?
Our View — Turnaround Tuesday
I lost money trying to pick a bottom and then the ES rallied 40 points in the final three hours of the day and even more after the close. I think the odds favor a “Turnaround Tuesday.”
The S&P has sold off over 223 points from its new high made on Thursday, just three trading sessions ago. There are only 8 trading sessions left in 2021 and like JPMorgan strategist Marco Klonicic said yesterday, there are reasons to be bullish into year-end.
Our Lean
I am going to KISS — keep it simple stupid — you can sell the rallies and buy the pullbacks or just buy the pullbacks today.
4640-4650 is ON TAP.
The Daily Recap
The ES traded sharply low on Globex and opened Monday’s regular session at 4552.75, down 66 points or 1.4% from Friday’s close. Tough way to start the week. After the open, the ES pushed up to a high at 4558.25 and sold off.
I could do all the rips and dips, but this sums it up better: The ES made several lower lows all the way down to 4520.25 at 11:40, down 32.50 points from the open. After the low, the ES traded up to the 4528 area, made a higher low at 4522.25, and then rallied up to 4543.50 at 12:21.
After the high, the ES sold off down to 4524.50, popped up to the 4536.75 level, and then traded up to 4648 after a small dip. The ES sold off a few points then rallied up to the 4550, pulled back again, and traded up to the 4553 area at 2:18, then sold off 15 points down to 4538.
The ES rallied back up to 4557.75 at 3:22 before dropping 10 points down to 4543.25 as the early imbalance showed $325 million to sell. The ES roared up to 4562 as the MIM came out showing $2.7 billion to buy, then sold off down to 4555.50.
On the 4:00 cash close, the ES traded 4559 and then rallied up to 4572.50 at 4:20, before settling at 4569.25 on the 5:00 futures close, down about 50 points or 1.1% on the day.
In the End
The only thing I can say is the S&P has Covid. All the non-stop headlines have the news algos working overtime.
In terms of the ES’s overall tone, it’s weak. In terms of the ES’s overall trade, volume was high at 2.02 million contracts traded. The expectation is that volume will decline in the coming days.
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Technical Breakdown
- NYSE Breadth: 80.9% downside volume
- NASDAQ Breadth: 69.3% downside volume
Breadth was fairly terrible yesterday, coming in at an 80% downside day even after the late-day rally. At one point earlier in the session, the NYSE was sitting with a near-90% downside day.
But there was something odd about the day: As much as we lacked upside traction, we were also lacking downside traction despite the lower open. The ES and NQ undercut the overnight Globex low shortly before noon and then bounced, holding that low for the day.
It was hard to be overwhelmingly bullish, but it was clear the downside felt limited.
The Game Plan
As for our approach to Tuesday, we put ourselves in a good position on Monday. We respected the lower open in the indices but went with the relative-strength leaders near the open.
Now let’s see if we can ride those into some nice gains ahead of the holiday while seeing how the market handles this morning’s gap-up. I’d love a strong day for the bulls but an opportunity to get long on a potential morning dip.
Remember: It’s a short week. When in doubt, stay out.
S&P 500
Have a look at the S&P futures, which are bouncing overnight. The futures bounced right off the 21-week moving average, a measure that has been pretty solid support over the past year.
With the bounce, the ES is now back above the 10-week moving average as well.
A move above this week’s high could put 4700-4712 back in play. Remember, as bad as the action has felt, the ES made new all-time highs on Thursday and remains in an uptrend.
The “line in the sand” for the ES now sits at this week’s low (4520) and the 21-week moving average. Breaking these marks and failing to recover them is discouraging for the bulls, to say the least.
Nasdaq
The Nasdaq futures haven’t had as much momentum as the ES, thanks to the selling pressure in growth stocks. It is effectively range-bound between 15,340 on the downside and 16,440 on the upside.
Keep in mind, the above chart is a weekly view, so this range has been in play for about a month.
For now, we need to continue seeing range support hold (along with the 21-week moving average) and for the NQ to push up through the 10-week. A close above the latter puts 16,000 in play, then range resistance near 16,400.
ARKK
Yesterday I mocked up a chart of ARKK using the weekly view, after its inside week last week. Well, now we’re using a daily chart, as ARKK gave traders an inside day on Monday.
Aggressive bulls may consider a long position over Monday’s high, near $96.50. I still prefer the weekly-up trigger at $97.50, as it coincides with the bear-market low from May.
Some traders will feel more comfortable just observing ARKK, using it as a proxy for growth and not trading it. That’s perfectly fine, too.
Over $97.50 is good. Below $97.50 and ARKK remains vulnerable. Below $93.28 (Monday’s low) and $90 or lower is in play.
Individual Stocks
As far as individual stocks go, we had a pretty good trifecta yesterday with PG, ABBV, and UNH.
All three stocks held where they needed to on Monday’s opening dip. Now we want to see those stocks rotate higher and press up toward the recent highs. If we get some continuation, don’t be afraid to take off ⅓ or ¼ of the trade and/or raise your stops up to break-even.
After an inside week last week and an inside day on Friday, I am kicking myself for having Broadcom (AVGO) on my own list, but not including it here. To be honest, I just didn’t think it would be able to rotate higher amid Monday’s mess and because of that, I didn’t think of it as an A+ setup.
Keep an eye on this one though. It’s clearly a relative-strength monster and one of the few tech stocks trading exceptionally well.
Tesla
Tesla is an interesting one, as it finally fills that gap at $910 and retests the prior highs at $900.
Slightly lower we do have some moving average support on the 4-hour chart and the weekly overlay (200-sma on the H4, 21-week moving average on the weekly).
With Tuesday’s gap-up though, I don’t know that we’ll get a test of these measures in the short term. Daily-up over $922 may be enough to put $950 in play, then potentially the 10-day moving average.
On a move lower, keep these moving averages on your screen.
Canopy Growth — Reversal Watch
It has been a long time since we’ve talked about the cannabis stocks and perhaps it’s still too early.
Canopy Growth (CGC) has declined in 10 straight months and is working on its 11th straight monthly decline in December. Ouch!
However, we do have some bullish divergence even as the stock makes new lows and as it breaks below the March 2020 low. I’m looking for a reversal back up through that low at $9.
My stop would be whatever the low is from here, but preferably the move happens quickly and we can use this week’s low. It could put $10 in play, then the declining 10-day and 21-day moving averages.
Micron — Earnings
Micron (MU) is trading $88.70 in the pre-market today, on better-than-expected earnings. See that it holds the $87.71 level — the November high.
If it does, we have a monthly-up rotation in play. Above $90 could put $95 resistance in play.
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!
Economic Outlook
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