Our View
I know people think the ES can rally, but the overall price action isn’t saying that. If you can catch a low that’s great, but in general, the rallies don’t last more than a couple of days. Oil has been weak and Morgan Stanley and Goldman Sachs both warned that stocks may face further losses amid dimming economic prospects.
I don’t want to mistake low volume, short-covering rallies as real buying or a real low. From peak to trough, the S&P is off almost 25% from its January high and has lost over $10 trillion in market cap. The largest individual loser is AAPL, which has lost $850 billion in market cap (although the stock has held up better than the Nasdaq index, as well as all of its FAANG peers + Microsoft).
The top 5 companies make up $3T in losses, the top 10 stocks in the S&P make up $5T in losses and the top 25 companies make up $6T in losses. With this in mind, I just don’t think the rallies are sustainable.
Our Lean
The S&P is up 3 of the last 4 days and the Nasdaq has been up 4 of the last 5 sessions. The S&P is down almost 9% in June, its largest monthly loss since 2020.
Starting today, Fed chair Jay Powell will face US lawmakers for the first of two congressional hearings on the state of the economy. Other Fed speakers include Thomas Barkin at 12 p.m., Charles Evans at 12:50 p.m., and Patrick Harker at 1:30 p.m. Then, President Biden will speak about “gas prices and Putin’s Price Hike” at 2 p.m. with expectations that he will call on Congress to enact a gasoline tax holiday.
Our Lean is simple: Sell the rallies. On the upside, watch the 3740 to 3750 area. Above that and it’s 3775 to 3785.
Daily Recap
The ES traded up to 3749 on Globex and opened Tuesday’s regular session at 3736.25. After the open, the ES quickly rallied ~35 points up to 3770 in the first 45 minutes of the day. After a small pullback, the ES traded up to a new high at 3781.25 around 1:15.
After the new high the ES sold off 24 points down to 3757, then rallied back up to 3778, putting in a lower high at 1:00, then pulling back 15 points to 3763.50 at 2:00, putting in a higher lower. In other words, consolidation. After the selloff, the ES rallied back up to 3783.75 around 3:15 — the session high — and sold back down to the 3772 level at 3:42.
The ES traded 3774.25 as the 3:50 cash imbalance FLIPPED to $1.1 billion to buy and traded 3768 on the 4:00 cash close. After 4:00, the ES sold off down to the 3764.50 level and settled at 3769.50 on the 5:00 futures close, up 92 points or 2.5% on the day.
In the end, no matter how far the ES rallies, the Fed is still behind the eightball, the economy is slowing, inflation is out of control, and stocks are in a bear market. In terms of the ES’s overall tone, it acted firm but also acted squarely at the highs. In terms of the ES’s overall trade, volume was low, with a total of 1.51 million contracts traded.
- Daily Range: 122.25 points
- H: 3783.50
- L: 3661.50
Technical Edge
- NYSE Breadth: 80% Upside Volume (!)
- NASDAQ Breadth: 71% Upside Volume
- VIX: ~$31
I find it somewhat telling that the VIX fell just 2.9% yesterday and still closed above $30 despite what appeared to be a strong rally in the market.
At one point, we were clocking 94% upside volume. We ended at just 80% upside volume. In a bull market, an 80% upside day would be “high-five city.” Instead, it just looks like a bear-market rally at the moment.
Game Plan — S&P 500 (ES & SPY), Nasdaq (NQ & QQQ), Oil, SLB
Today’s action could really set the tone for the rest of the week, depending on how Powell impacts the market and how it handles this morning’s gap down.
S&P 500 — ES
Yesterday, we said that “If the market clears this battleground spot, it puts 3750 in play — the Globex high. Above 3750 and 3800 to 3830 is in play, along with the 10-day moving average.”
We didn’t quite make it to 3800+ but it was a pretty solid push from the bulls. We come into 8:00 down about 50 handles.
I’m going to make it simple: Above the Globex high (3768) without reversing back down opens the door to yesterday’s high (3784). Above that puts the 10-day moving average on the table (~3610).
Below the Globex low (3693) and yesterday’s low is in play (3661).
With Powell’s testimony starting at 9:30 a.m., my gut leans to the lows being run and we’ll see how the ES trades from there.
S&P 500 — SPY
From yesterday: “If the SPY can gain traction over $372 this week, $380 could be in play. Otherwise, a gap-fill and fade is very possible.”
On the downside, let’s see if the SPY can fill the gap at $369.38. If it does but fails to bounce back to $372+, we could be looking at more pressure on the downside, potentially into the $364 to $365 area.
If we do fill the gap and reclaim $372+ then let’s see if the SPY can make a push toward unchanged, near $375.
Nasdaq — NQ
Big range, but a simple setup. Let’s see how the NQ handles 11,675 on the upside and 11,275 on the downside — Tuesday’s high and low.
A break of the low that’s not reclaimed could put a new 2022 low in play.
On the upside, I’m looking at 11,675 and the 10-day near 11,650 as resistance until proven otherwise.
Above those measures and the 11,850 gap-fill could be on the table.
Nasdaq — QQQ
Gap-fill is near $277. I really want to see how the market handles that near the open.
Meaning, do we fill the gap on the open and bounce, at least back to yesterday’s low at $278.64, or do we gap-down and melt lower?
Oil
Oil (/CL) needs to regain $106.50 — last week’s low — to repair some of the technical damage on the charts. A further breakdown puts $100 in play, then a potential dip into the mid-$90s and the 200-day moving average.
On the plus side, this would be a positive for consumers.
SLB
There is an enormous shortage of individual stock setups, as tends to be the case when the VIX is above $30.
As for SLB, it tested down into the 200-day moving average and range support near $37 on Friday. This level held as support before Tuesday’s bounce. Now we’ll see if it holds again with Wednesday’s dip.
If so, investors could have a very solid risk/reward setup here — but they need oil to bounce.
Go-To Watchlist — Individual Stocks
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the ones I’m watching most closely.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
- DXY / UUP — A little complex w/ the position, because we have some runners from the first trade and a great bounce from the second trade. On Friday, we trimmed $28+
- On the upside, I’m still looking for $28.20+ to trim more.
- $28.50 to $28.65 is the next meaningful upside target.
- On the downside, I’m raising my risk to a break-even stop.
- On the upside, I’m still looking for $28.20+ to trim more.
- MCK — Solid bounce into our first target area ($310 to $312) → but now trading into active resistance (the declining 10-day). I would be trimming more into $312 to $313, which is last week’s high and the declining 10-week.
Relative strength leaders (List is cleaned up and shorter!) →
- BMY
- XLE
- MTDR
- AR
- CLR
- VRTX
- DLTR / DG
- IBM
- ARCH
- NVA
- MCK
Economic Calendar
Excellent timing with Powell…
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.
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.
