Our View
According to Investopedia, rebalancing involves the periodic sale and purchase of assets within a portfolio to maintain a target ratio. Consider an investor who wants his portfolio to be comprised of 50% growth stocks, 25% income stocks, and 25% bonds. If during Q1, the growth stocks outperform the other investments substantially, the investor may decide to sell some growth stocks and purchase more income stocks and bonds to bring the portfolio back to a 50-25-25 split.
JPMorgan analysts say the end of the first quarter of 2022 is one of the largest rebalances ever. Based on its size, we think it’s fair to assume the rebalancing has already started. While a very large portion will be worked off over the next six sessions, the final trading day of the quarter will see oversized imbalance numbers that, for the most part, will be pared off.
From Bloomberg:
JPMorgan Chase & Co. projects pension and sovereign wealth funds are poised to rebuild risk-on positions that have fallen in value between Russia’s invasion of Ukraine and rising inflation — with a potential $230 billion equity-buying spree…An inflow of at least $100 billion and as much as $230 billion could trigger gains of between 5% and 10% to global stocks.
We also found this interesting:
The U.S. Treasury market endured one of its worst weeks of the past decade last week while an index of Treasuries is down 3.8% this year, more than in any full year on record in Bloomberg data beginning in 1973. “The big difference time is that bonds are not up. This is not a standard bear market,” Deluard said.
Our Lean
The ES got up to my 4480 level on Globex and failed — as expected — but most of the selling overnight was used up. If there is any lesson learned, it’s that the ES and NQ almost always rally on Globex after a lower closing in the prior day session. Sometimes these lows end up being the low of the move, so they need special attention.
**I’m looking to incorporate sending a daily update on the days that warrant it. Sometimes my calls are off, but during the day I see a low or a high that offsets it if it’s caught fast enough. Other times they are on but happen over Globex. So we want to update.**
Our lean is for higher prices. You can sell the early rallies and buy the pullbacks or just buy the pullback. Then come back late in the day and trade the final hour. Some people think Putin could call a ceasefire in Ukraine. I say not a chance.
Daily Recap
The ES traded down to 4445.75 on Globex and opened Thursday’s regular session at 4467.50. It puked up 12 points in the first six minutes of the day, trading 4456 at 9:36, then rallied up to 4478.25 at 10:06 and dipped back down to 4460.25 at 10:30.
From there, the ES went on quite the run. While it was a bit bumpy, it rallied almost 40 points from the 10:30 low to 4498.50 at 11:40. That was followed by a 22 point dip over the next hour, then a 21 point rally from 12:35 to 2:00 as the ES put in a higher low at 4497.50.
One more 15 point dip into 2:45 is all the bears could muster for the rest of the day. The ES rallied up to 4507.25 going into 3:30, then traded 4504 as the 3:50 cash imbalance showed $2.4 billion to buy and traded 4513 on the 4:00 cash close.
After 4:00 it rallied up to 4517.50 — the day’s high — and settled at 4513.25 on the 5:00 futures close, up 68.75 points or +1.55% on the day.
In the end, every dip was bought. When the ES was making its low you could see the selling power was used up. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume has disappeared, with only 1.184 million contracts traded. Clearly, it’s slowed and it feels like people are taking a step back.
- Range: 71.75 points
- H: 4517.50
- L: 4445.75
Technical Edge
- NYSE Breadth: 72.3% Upside Volume
- NASDAQ Breadth: 74.6% Upside Volume
Obviously, downside volume tends to outpace upside volume, but the dive in volume is a bit of a concern to me even though the bulls have done a great job over the last two weeks.
I’m totally fine with the low being in and being wrong about feeling somewhat cautious. But the lack of upside volume — really, just one 80%+ upside day on the NYSE in this stretch? — has me wondering…
Game Plan
The bulls can have their time in the sun and believe me, as a natural bull, I would love nothing more than to yell, “The coast is clear!”
A few things linger in the back of my mind though — upside volume included. Beyond that, the ongoing geopolitical issues remain, inflation is raging (as are gas prices), and the Fed is in a tightening cycle.
That said, longs seem determined so let’s look at the levels.
S&P 500 — ES
- Feel free to extrapolate the below levels to the SPY
Same upside take as yesterday:
“On the upside, we have back-to-back highs at ~4515. A break above this level that doesn’t reverse puts 4440 in play, then potentially 4480 — two main levels from this week’s video.”
Now making some nice progress, I want to see last week’s high of ~4466 and the 200-day act as support. Below puts the multi-day low of ~4445 in play, along with the sharply rising 10-day ema.
Nasdaq — NQ
- Feel free to extrapolate the below levels to the QQQ
No change to yesterday’s view.
“Clearing the two-day high of 14,690 could open the door to a larger rally, potentially up to 15,000.”
Above 15K opens the door to the 200-day SMA, then the 61.8% retracement near 15,300. Below 14,690 and the 14,450 to 14,500 area is in play.
Russell — RTY
Refer to yesterday’s chart. Longs need 2100+ to regain momentum.
Oil
Man, how nice has this oil trade been to us?! Yesterday we flagged the $115 to $116 zone as “a major trim zone for longs.” Oil has now reversed lower by $7.50 a barrel — a nice move in the futures world.
You know the drill now. We need the $107 to $108 area (10-day and 21-day) to hold as support. If it does, $115 to $116 is back in play. If it fails, $103 is on the table.
NVDA
Nvidia has been an absolute monster for tech lately. We’ve hit 2 out of our 3 upside trim spots. The last level I have for this series is $293-ish. I’ve raised my stop to $250.
Nice profits here, now no letting a remaining winner turn into a loser.
TSLA
The relative strength in AAPL and TSLA jumped out to me yesterday and that remains the case today. Both have rallied in 8 straight sessions, not something many others have done.
TSLA has done so on strong volume, too. Now we have an inside day.
If markets are firm, watch for a daily-up rotation in TSLA at $1025.50. That could put this week’s high in play near $1040.
On the downside and if markets are weak, a daily-down rotation below $988.80 that’s not quickly reclaimed could put $975 to $977 in play quickly, then possibly $950-ish.
Go-To Watch List
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
- PANW — Definitely trimming ⅓ to ½ here at ATHs. Would love to see a further push to the upside. $645 to $650 is the next trim zone.
- BRK.B — Hit $342 trim spot. Trimmed another ⅓ at $350 — down to runners but no problem with cashing out completely here and look for a BTD opportunity at the 10-day ema.
- VRTX — Trimmed ⅓ at/near $250. $254-$255 next trim spot (small).
- F — 2x weekly up rotation is triggered (from video). Looking for $17.50 to $17.80 as first trim area. Followed by the declining 50-day. Would love a gap-fill at $19.87.
- BMY — Trimmed ⅓ to ½ here. Look for $73.50 to $75 next.
- COST — Trimmed ½ at $565.
- TECK
- TU — forming a nice inside week
- MCK
- MKC — Was watching $99+ but now an inside week forming
- CCK
- Energy —XLE, APA, CNQ, CVX, ENB, PXD — robust strength
- ABBV
- ADM, MOS
- CHKP, PANW
- AR
- DLTR — Flirting with weekly-up over $157.80 — $165 is the upside target.
Economic Outlook
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