The Opening Print Recap
There is a very distinct pattern that exists in the S&P futures, which is when it closes weak and rallies on Globex and that’s what happened yesterday.
After making a low near 4677, the futures rallied up to 4704 and opened Monday’s regular session at 4701.75. After the open, the ES traded up to an early high at 4707 and then got hit by several large sell imbalances, pushing the futures down to 4697.50 at 9:40 a.m. From there, the futures fell into a 10-point trading range until another round of sell imbalances hit, pushing the ES down to 4691.25 at 10:43.
After some more chop — remember, we had some talking Fed heads on Monday — the ES then gave us some back-and-fill, made a few higher lows and then traded back up to 4699.25. After the pop, the ES pulled back down to 4693.75 and then rallied back up to 4699.50 at 3:05.
Sounds like chop, right?
The ES traded down to 4690.25 at 3:48 and traded 4693.25 as the 3:50 cash imbalance showed $1.68 billion to buy and traded 4691.50 on the 4:00 cash close. After 4:00, the ES drifted around in a 4- to 6-handle range and settled at 4692 on the 5:00 futures close, up 6.25 points or 0.13% on the day.
In the End
In the end, it was a choppy, sideways Monday. In terms of the ES’s overall tone, it acted tired mainly due to Elon Musk doing an online Twitter poll asking users if he should sell 10% of his shares, which is valued at around $21 billion. For what it’s worth, we had a “less is more” approach yesterday. That goes for our cautiousness towards the index futures, but also with a simple buy-the-dip trade in Tesla as it tested into support at the open. Both approaches paid off nicely.
In terms of the day’s overall trade, volume was LOW. There were 183,000 ES traded on Globex and 768,000 on the day session for a total of 951,000 contracts traded. Breadth was slightly better than 50/50, favoring the bulls for both the NYSE and the NASDAQ.
Our Lean
I can’t seem to get it out of my head that “there must be a pullback” at some point. The Nasdaq was up 10 days in a row before Monday’s 0.15% “dip.” The S&P is now up eight days in a row and is up in 17 of the last 19 sessions.
The Funny thing is, none of that seems to matter. The buyers are totally fearless and believe the march to year-end is higher — everyone is trying to catch an upside flyer. Yesterday the S&P cash closed at a record high for its 8th consecutive session, something it has not done since 1997, while both the Dow and Nasdaq hit fresh records.
So far 81% of the S&P companies that have reported earnings this season have topped analysts’ forecasts. My question is simple: How long can the markets keep making record highs and not pullback?
The bottom line is, the ES is doing what it’s been doing after every high recently — it trades down a little, gives us a back-and-fill, then rallies again. Really nothing has changed…
Our Lean: I think you can sell the early rallies and buy the pullbacks keeping in mind how much the ES has rallied over the last 5+ weeks. My gut says lower but it’s very hard bucking the trend right now.
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Technical Breakdown — A Day of Potential Reversals
AMD
Both Nvidia and AMD have exploded higher and if we’re being honest, if the only thing any of our subscribers did was hit the AMD trade, they would be set for the quarter.
However, with shares trading ~$154+ in the pre-market, we do face the risk of a reversal. An open above $153.60 — Monday’s high — and a failure to hold it puts the “reversal trade” into effect. Those that actually take the short setup can put their stop-loss just above Tuesday’s high.
Otherwise, traders should use the reversal as an opportunity to book some profits and/or raise their stop-losses. We have killed this sucker and there’s no reason to get spanked on the decline.
On the flip side, AMD may not be done yet. Granted, the bulk of the move has likely occurred, but we can’t rule out higher prices given the way it (and the overall market) continue to trade. In that case, the 261.8% extension is still on the table.
Nvidia
With Nvidia’s GTC event going on, it’s been enough to send shares to new all-time highs in pre-market trading. Shares are trading a bit better than AMD, up 5.5% to $325. Like AMD, this has been a rewarding stock over the last four to six weeks.
However, it too faces a reversal risk on Tuesday if it gaps over the prior high at $314 and fails to hold above this mark.
On the flip side, over $322 and the $340s are technically in play.
PayPal
Reversals can cut both ways, as PYPL stock is gapping down on earnings. This is a great company, so to see shares down 30% from the highs is definitely discouraging. Shares are down about 5% to ~$217.50 in pre-market trading.
That’s got shares gapping below last week’s low at $224.60, as well as the prior 2021 low at $223.09. In December, PYPL gapped over $220 and has found the low $220s as support ever since.
If the stock can reclaim the prior 2021 low at $223.09, I like a potential long reversal setup in this name against Tuesday’s low. Keep in mind, the stock has the 21-month moving average nearby, around $220.
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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