Our View
Tuesday was not a very good session for the bulls. After a strong start on Monday — with the daily-up rotation highlighted in the Technical Edge section — it was off to the races. However, bulls quickly found themselves in reverse on Tuesday. The weak bond market put pressure on Nasdaq and in turn, that weighed down the S&P and pushed the 30-year mortgage above 5% for the first time since 2018.
One day does not make a trend. However, we are at a point in the market where one could look at this week’s current action and say we have a higher low in place. Honestly, it all depends on whether support comes into play or not.
Last night, the ES settled at ~4526. Last week’s low comes into play at ~4500. If we start to lose that area then traders have to prepare for two things: More potential downside and an increase in the ranges/volatility.
Our Lean
I was right on the pullback yesterday, but it went further than I thought as the ES and NQ both traded through our two downside levels. With the exception of a few bounces, the ES was quite weak. We rallied 17.5 handles out of the 10:30 low, but once that low failed later in the morning, it was all downhill from there.
My guess is we see lower prices on Globex. Today we have the Fed Minutes at 2:00, which is obviously going to make things tricky. If we trade down to the 4480s before the open, let’s see if we get an early bounce.
Our lean is for a gap-fill if we open in the 4480s. That would put the 4500 to 4507 zone on our radar. From there though, see who gains control. If it’s the bears, we may be selling the rally.
Daily Recap
The ES opened Tuesday’s regular session at 4562.25, rocketed right up to the 4580s, traded sideways and spiked to 4588.75 at 10:03 after the ISM number. From there the ES reversed, dropping 30 points in 10 minutes and ultimately bottomed at 4547.50 at 10:30, 41 points off the high.
We popped back up to 4565 and then made several lower lows down to 4536.25 at 12:33. The ES traded up to 4542.25 and did a ‘Riley retest’ and made a higher low at 4537.25 — a classic MrTopStep setup — and rallied back up to 4553.75 at 1:17. From there, the ES rolled right back and slightly broke the lows and held in the low-4530s until 3:00.
After 3:00, the ES fell ~27 points to the session low of 4507.75, before rallying 13.50 points into the close as the MIM flipped to more than $600 million for sale. At the 4:00 cash close, the ES finished at 4521.25 and settled at 4526.25 on the 5:00 futures close, down 57.50 points or 1.25% on the day.
In terms of the ES’s overall tone, the new lows in the bonds knee-capped the Nasdaq. In terms of the ES’s overall trade, volume picked up slightly because of the selloff, but not by much with 1.27 million contracts trading.
- Total Range: 81 points
- H: 4580
- L: 4507.75
Technical Edge
- NYSE Breadth: 77% Downside Volume
- NASDAQ Breadth: 79.3% Downside Volume
After a stellar run off the lows, a mild dip, and a great bounce/rotation on Friday and Monday, the ball looked to be back in the bulls’ control. I don’t want to give one day too much credence, but if we lose support I will not hesitate to switch gears.
I have seen people call this “wishy-washy” or negatively reference this “flip-flopping.” In a choppy market, it can be painful (or deadly without enough risk control).
However, I consider it essential to go with the flow of the market. Traders that don’t, end up stubborn and fighting something they can’t control. Let’s say we’re rolling over and are going lower. You don’t have to be a seller necessarily, but just knowing that it’s not time to be a buyer can save you plenty of mental and financial capital.
Game Plan
Today is a big day in terms of what the Fed has to say and in terms of seeing whether some support comes into play for the market. Before we look at the technicals, I want to break down our trading style and we’ll use Apple as an example.
I have gotten some questions/emails about this, so let’s break it down really quick. The premise is simple:
- Enter a trade
- Have a predetermined stop
- If we hit our first target, raise stops to B/E and look for target No. 2
On Monday, we were looking for a daily-up rotation over $174.90 to $175 and that “If it holds, we could see a quick push back to the $178+ area for a trim.”
Some traders like the B/E stop, others don’t. In a big bull tape, I will be laxer with the stop-loss. In a tape like this, not so much.
I would just say, do what works for you. This style works for me and I would rather walk with ⅓ to ½ of my profit at Target No. 1, than let a trade go from green to red. But this mentality is not for everyone, so do what works for you!
Anyway, I hope this helps when it comes to managing some of these trades!!
S&P 500 — ES
The ES is continuing to sell off overnight and into this morning’s pre-market session. Already down about 40 handles, let’s see if the 200-day can buoy it.
If it does, an early bounce back to 4500 (last week’s low) and the gap-fill level (4507) is in the cards. From there though, it’s anyone’s guess on a Fed day.
A bounce and then break of the Globex low could usher in more selling. In that case, the 4447 to 4450 area is on watch, followed by the 21-day and 50-day moving averages.
Upside levels:
- 4500 to 4507
- 4520 to 4526
- 4548 to 4550
Downside levels:
- 4480/200-day
- 4447 to 4450
- 21-day, then 50-day
SPY
Watch last week’s low near $449 and the 200-day. A break of these levels could put ~$444 on deck.
Like the ES, that’s followed by the 21-day and 50-day moving averages.
On the upside, let’s see if we can get a rally off the open, putting $449 to $450 in play. Above that opens the door to $452.
AMD
Semis got rolled yesterday as bonds continue to get whacked.
I don’t know how many times AMD can test ~$100 and have it hold, but it’s worth having on the radar, even if it’s just for a quick day-trade bounce.
PXD
Keep an eye on the $235 to $237 area and the 10-week moving average. Thus far, it has been support in a big uptrend.
TSLA
We’re going to find out real quick whether we’re about to lose some of the leaders in tech. See how TSLA handles the 10-day and last week’s low.
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).
- AAPL — Hit our first trim spot at $178 — stopped.
- Watching XLB to see how it consolidates these gains. Break lower or remain a leader? Daily-up rotation failed yesterday.
- TU — “Look for $26.90 to $27 to trim another ⅓ to leave runners or another ½ to exit completely.” → for those that left runners, consider a $26.50 stop. Otherwise, wait for the reset. Great trade.
- PANW — Next trim spot is $645 to $650 — careful. $595 stop.
- MCK — $310 Trim Spot hit → Stop now at break-even. If we clear $310 before stop-out, $315 to $316 is next trim spot.
- MKC — $103 to $104 Trim Spot hit → Stop now at break-even or ~$99. Look for another small trim at $105+
- COST
- DLTR
- VRTX
- BMY
- CCK
- Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
- ABBV
- BROS
- ADM, MOS
- PANW
- AR
Economic Outlook
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
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