Our View
When it comes to the long-term, I’m a bull. That’s just who I am and anyone who knows me knows that. Now you do too. Even though the market is trying to hold up and even rally, I’m having trouble being optimistic.
Uncertainty remains at a fever pitch and I think the markets have firmed up because of the end of the month rebalancing. Over $5 billion moved into US mutual funds last week and yesterday’s MOC was another $1.4 billion to buy.
According to the Stock Trader’s Almanac, the S&P has been up 12 times and down 9 times for the month of March in the last 21 occasions, with an average gain of 0.7%. March can be known for its big moves and turbulence too — remember March 2020?
Historically, March is strong early in the month and into mid-month, but weak late in the month and has taken some hits at the end of the quarter. This time, it comes with the two-day Fed meeting announcement on March 16th. Will they sell into the meeting and rally on the rate hike? Who knows.
Dialing it back to the present, it’s hard not to like the price action right now, but ‘Our View’ is subject to headline news and we all know how fast things can change. Unfortunately, this environment persists and will continue to persist for the time being— particularly without a significant upside breadth day yesterday (more on that in the Technical Edge).
Note to the readers: Below is the ‘View’ that was written after the close yesterday. The ES has already rallied up to 4399 on Globex — an area I wanted to sell — and sold off 78 points. I try very hard to base my trading on how the futures acted on the previous close. I am a strength / weakness trader and have learned that rewriting the View, more often than not, ends up wrong. I have full confidence in my read of the S&P, but there are times when the future moves too much on Globex and my view becomes void.
Our Lean
Well, I had it right about filling the gap and selling into it yesterday but the boys with the better seats had stocks to buy at the end of the month and rallied the ES 50 points in the last 40 minutes.
The first trading day of March has been up 22 of the last 26 occasions and we think that’s how this is going to play out today. Barring some wacky headline, Our Lean is to sell the early rallies and buy the pullbacks.
Updated at 8:26 am (ES 4336 last). I think we could rally a little this morning but with gold trading at 1,920.10, crude at $100.00 and the Dax 300 off its high I am not sure it will stick.
Daily Recap
The ES plunged overnight, gapping down by 80 handles on Sunday’s Globex session. By the time the 9:30 open came around, the ES had rallied 24 handles from the Globex open and 72 points from the overnight low. However, it was still down 57 points from Friday’s close.
It opened Monday’s regular session at 4325.25 and rallied up to 4348.50 at 10:00 before trading back down to 4321.50 at 10:20. After the low, the ES roared higher, filling the gap up at 4385.50 at 11:34, then pulled back to 4364. A mild bounce sent it to 4380, where it made a lower high and pulled back 50 points just after 1:30.
Another bounce sent the ES to 4354 at 1:53 and then another pull back sent it down to 4310 at 2:12. At 3:40, it came to life, rallying from ~4322 to 4354. As the 3:50 cash imbalance showed $1.4 billion to buy, the ES surged up to 4372.75 at 3:59 and traded 4369 on the 4:00 cash close. It settled at 4368 on the 5:00 futures close, down about 10 points or 0.23% on the day.
In the end, the ES filled the gap at 4385.50 and faded, before closing firm. In terms of the ES’s overall tone, it was firm despite all the flip flops. In terms of the day’s overall trade, volume was steady at 2.095 million contracts traded.
- Range: 134 points
- H: 4385.50
- L: 4251.50
Technical Edge
- NYSE Breadth: 45.2% Upside Volume
- NASDAQ Breadth: 62.5% Upside Volume
Welcome to March. As push into the final month of the first quarter, the market still looks dicey. Sentiment is finally rolling over, crude is hitting new highs over $100, the VIX remains above $30 and the market remains on edge.
Each time the VIX pushes into the $37 to $38 area, it ends up fading. We’ll see if that remains the case in the days and weeks ahead.
As it pertains to breadth, many were looking for another 80%+ upside day on the NYSE. That may have indicated a return to demand in equities. As it stands though, we could not generate another 80% day like we did on Friday. Nor could we on Thursday despite the big reversal.
For now, we continue on in the same environment we’re now getting used to.
Game Plan
S&P 500 futures are gapping down once again and we remain fixed on trading lightly. Size smaller and when you’re wrong don’t hesitate — get out when you hit your stop.
When we look at the S&P, it ran right to our top upside target in the overnight session:
- 4391 to 4400 — Last week’s high and the 61.8% retracement
Let’s lay out the S&P, because it’s important and has similarities to last month.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
The S&P is currently in an “ABC” type correction. The question — and worry — is, does it become an “ABCDE” type correction? Basically, a three-wave or a five-wave correction is what traders are contemplating.
We had the rally to the 61.8% retracement, which is exactly what happened a few weeks ago (aka, the “B-leg” high). If this is anything like the last time around, the SPY may ultimately roll over again and retest some of these lower levels.
That could set us up for a selloff into the Fed event on March 16 and a potential rally on the news. I don’t want to get into predictions, but it’s one scenario in the back of my mind.
The upside levels are:
- The 10-day ema — bulls need to reclaim this level
- 4391 to 4400 — Last week’s high and the 61.8% retracement
- 4399 is the O/N high
Downside levels of interest:
- 4344 — the 50% retracement
- 4318
- 4251.50 to 4260 — Monday’s low and the Q4 low, respectively
- 4212 — January Low
Nasdaq — NQ
- Feel free to extrapolate this layout to the QQQ.
The upside levels are:
- 14,196 — Last week’s high
- 14,292 — Monday’s high
- 14,400 to 14,426 — Q4 low, 61.8% retracement, declining 21-day sma.
Downside levels of interest:
- 14,143 — 50% retracement
- 13,987
- 13,683 to 13,706 — yesterday’s low and the January low, respectively.
Gold
Can continue to wait for a better setup on the daily (like an inside-and-up rotation). However, aggressive bulls can look for a move over $1930, which is an H4 up rotation early in the session.
Bitcoin
Look at the way Bitcoin has broken its streak of higher lows and lower lows. Now we have a higher high and a higher low.
The recent move has been swift, but a monthly-up rotation is possible over $45,850. That could put channel resistance in play near $47,500, then the 200-day sma.
On the downside, we need to see the ~$40,500 area hold as support, given that that’s where 10-day, 21-day and 50-day moving averages are.
Individual Stocks & Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
The current volatility has created a scenario where attractive individual setups are tough to come by. Plain and simple, the overnight gaps are difficult to work with and the elevated VIX and news-driven headline moves make the indices a more attractive playground for traders at the moment.
If the NQ really starts to roll over, look at high-growth stocks that have the potential for daily-down rotations. That’s names like ROKU, PINS, NVTA, etc.
HP — Earnings
Taking a look at HP this morning, shares are gapping higher by about 1% on the day. I think there could be the potential for a fade, especially if the markets are weak.
On the left we have the daily chart, on the right is the weekly. This area is not insignificant.
While it could break out, we could also see a reversal. If we gap above Monday’s high of $36.28 and reverse below it, bears can consider a short position against the high of day.
*This is just a framework. It’s hard to know if it will come to fruition.
Go-To Watch List:
- KO
- ABBV
- BMY
- Defense — RTX, GD, LMT, NOC
- Energy — FCX, CNQ, CVX
- SYY
- TU
- COOP
- MAT
- Gold
- CCK
- BRK.B
- H and MAR
- TECK
Economic Outlook
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