The PitBull
Aside from his family, there are few people in the world that are closer to the PitBull than I am. He says he is slowing down, but like a lot of us he admits he’s still a trading junkie. He used to call me everyday with his ‘channel lines’ for the S&P, day in and day out for over 25 years. Like a lot of the old tools that used to make him money though, they don’t work anymore.
I constantly tell him that it’s not him, it’s all part of the new world trading order where the tools we used to rely on have been programmed into algos. He is just as smart now as he was when I first met him. However, there’s one thing that he still has that the algos can’t take: Stock-picking and levels.
We could all look at the past and admit there are things we would have done differently. That’s trading. Hell, that’s life, really.
Investment-wise though, if there was one thing I could’ve done differently, it would have been to buy every name on his stock list. If I had done this, I would have retired 20 years ago. PitBull and I are well past the days of him “beating the shit out of me while doing his S&Ps.” He knew then, just as he does now, that I always put my best foot forward for him.
Yesterday around 1:00 the Bull called me. We bullshitted for a few minutes and then we jumped into the markets. He said he was taking it easy after a positive March, but he said three things:
- I don’t know what you see, but I see a lot of the stocks making lower highs
- The end of the quarter mark-up is a desperate attempt to push stocks up
- The Fed is fucked
Our View
As long as the Fed is printing billions a month in QE and the world is short going into the end of the quarter, the rebalancers are buying everything in sight.
Even Cathie Wood’s ARK funds have finally caught a bid. Yesterday was T+2. Today is T+1. In other words, this is the process in which the big stock funds mark-up and mark-down stocks and bonds within their portfolio.
To tell the truth, I’m not sure what the next move is.
Like we pointed out, the Q1 rebalance will be one of the largest. Things have slowed and the lower volumes have clearly helped grease the wheel. While I agree with what the PitBull said, I also don’t know when the ES is going to start retracing on the downside. Right now, the buyers are in control and they’re doing it with the same pattern:
Open higher and rally, selloff and make an early low, chop around with a bias to the upside, then close strong.
Does that end today? I don’t know, but what I will say is that the ES can’t and won’t keep going up without some pullbacks.
Our Lean
Volume picked up a little yesterday — trading 1.31 million contracts on a 1.57% gain — and should pick up the next two days with the rebalance trade. I still think that with the ES rallying so much over the last 10 days, it’s safe to sell the early rallies and buy the pullbacks.
I also think it’s important to pay attention to the times the ES makes its early-day highs and when it makes its pullback lows. And lastly to pay close attention to how the sell off lows are set up.
In other words: Make the low, bounce, then wait for the higher low reset. I know this may sound crazy, but it’s one of my favorite ES trade setups. If you can hold, it’s generally the low of the day if not another low and the same retest. I know there is a leg down coming at some point, but for now, that’s all part of the sell the early rallies/gap-ups trade.
Technical Edge
- NYSE Breadth: 79.8% Upside Volume
- NASDAQ Breadth: 83.2% Upside Volume (!)
The ES is now up more than 12% in 11 sessions, while the Nasdaq is up more than 16.5% from the March low.
Something else extraordinary? The S&P 500 is less than 4% away from its all-time high.
All I can think about is how much we talked about a “sell the rumor” lead-up into the Fed event and a “buy the news” reaction to its hawkish stance.
The reason why is simple: It’s not what investors would have thought would happen — buying in the face of a bunch of rate hikes. The market has a funny way of doing that.
Game Plan
The question now is, how far can the market continue to go?
I’ll come out and say it — this rally has gone further than I thought it would go. But just like we talked about it in this week’s video, at some point it needs to dip, even if it’s just a mild correction into some short-term support.
This would be the healthiest outcome for bulls.
ARKK
Let’s start with a look at ARKK first. High-growth stocks have been a huge underperformer. And I mean huge. Everyone loves to rag on Cathie Wood & Co.
Personally, I could care less about the narrative, but the reality is that the return of growth stocks would be another feather in the cap for the bulls. It would signal “risk-on” — just like when we see small caps perform well.
As you can see on the daily chart above, ARKK is pushing through the 50-day after a week-long consolidation. However, it’s struggling with the $71 area, the prior March high. To push through this area could open the door to last month’s high near $78.
On the weekly chart, you can see that it may not be that simple, though. While finally pushing through the 10-week moving average — the first time since early November — ARKK still faces the 200-week and 50-month moving averages nearby.
It’s a development to watch here, especially with the rebalance trade in play over the next few days.
S&P 500
Zooming in a bit, I want to see if the 8-day/10-day moving averages hold here as support on the S&P futures (ES). That has been the short-term trend and I think it’s something aggressive bulls can watch.
Back on the daily, resistance did not come into play where I was looking (4540 to 4580). So let’s see if 4580 to 4585 acts as support. That’s followed by ~4540 and the 10-day.
Nasdaq
All upside targets have been achieved on this push. Now I’m looking at 14,950-ish for short-term support. That’s the 21-sma on the 4H chart (shown above) and near yesterday’s low.
Below that, my support levels are the 14,850 to 14,875 area, then the 10-day ema on the daily.
My upside target is ~15,300.
CAT
Looking for daily-up here over $221.50. First trim target is ~$225.
Go-To Watchlist
*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 — Next trim spot is $645 to $650
- F — Trim spot No. 1 Hit | Next trim $18.30 to $18.50
- COST — Trim spots hit. ⅓ to ½ left. Would love to see $575 to $578 next.
- DLTR — Weekly-up triggered — $165 is the upside target.
- AVGO — Great trade and down to ⅓ already. I am just leaving the remainder as a runner. If the market rolls over, I may cut but either way, I will not let it turn into a loser from here.
- NVDA — Still Looking for $293 on last ⅓ position
- MCK — looking for test of 10-day ema & undercut/reclaim of yesterday’s low.
- BRK.B — Looking for possible support at 10-day ema
- VRTX — Trimmed another ⅓ at $254 on Friday. Down to just runners.
- BMY — Trim Spot Hit! | Down to runners or 100% closed.
- TU — Inside-and-up week at $25.80
- MKC — failed rotation. Avoiding for now.
- CCK
- Energy — XLE, APA, CNQ, CVX, ENB, PXD — etc.
- ABBV
- BROS
- ADM, MOS
- aPANW
- AR
Economic Outlook
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