Our View
The Nasdaq gained 3.3% on Friday and closed out the week up over 6%. The S&P gained 3.1% on Friday, its largest one-day gain in percentage terms in more than two years, and gained 6.4% on the week.
Can the ES keep going up? I think there is a good probability the S&P moves higher into the end of the quarter and the first 2 or 3 sessions in July. According to J.P. Morgan’s chief global markets strategist Marko Kolanovic, U.S. equities could see a 7% move up next week as investors rebalance their portfolios after a brutal first half of the year. This week marks the end of the month, second quarter, and first half of the year, making for a busy time for investors with fixed-weight portfolios who must rebalance their asset exposure to account for past market moves.
Kolanovic said:
“While these rebalances typically do not tend to become main drivers for markets, they can assume a more important role when the market moves over rebalance windows were large and in the same direction, as is the case now.”
“On top of that, the market is in an oversold condition, cash balances are at record levels, and recent market shorting activity reached levels not seen since 2008.”
Further, stocks tend to generate a solid return at quarter-end if they are down on the quarter.
Our Lean
According to the Stock Trader’s Almanac, the last trading day of June is bullish, up 8 of the last 10 and the Nasdaq has been up 21 of the last 29 occasions, and get this, the first trading day of July (Thursday) has the S&P up 28 of the last 32 occasions with an average gain of 0.50%.
We think the ES can go higher, but we can’t rule out some 30 to 50-point pullbacks as the larger trend is still down. I think we have done a good job of keeping up with the direction, but who in the world would have thought the ES was going to trade all the way up to 3920 on Friday?
In addition to the rebalance, ‘thin to win’ is going to take place as more people take off for the 4th of July holiday. I can’t rule out selling a good rip today, but there should be a decent amount or buying/rebalancing around to keep the market “bid.”
Daily Recap
The ES opened Friday’s regular session at 3831.75 and immediately went into rally mode, climbing to 3889.75 at 10:24, up more than 50 points from the open. After a few small sell programs and a push back down to down to 3875, the ES hit a new high at 3892.75 at 12:20 and then rallied up to 3894.25. at 1:03. For the next hour and 20 minutes, the ES fell into a 10-handle ‘back and fill’ pattern and slowly crept up to 3899.75 at 3:24.
After a small pullback, the ES rallied up to 3905 at 3:47. The ES traded 3904.50 on the 3:50 cash imbalance and showed $3.1 billion to buy and traded 3919.75 on the 4:00 cash close. After 4:00, the ES sold off down to 3905 at 4:32 and settled at 3914.75, up 116.50 points or 3.1% on the day.
In the end, if you are surprised by the bounce maybe you should consider the S&P was down 10 of the last 11 weeks. In terms of the ES’s overall tone, every little drop was bought. In terms of the ES’s overall trade, volume was steady and 1.47 million contracts traded, but still below average.
- Daily Range: 138.50 points
- H: 3919.75
- L: 3781.25
Technical Edge
- NYSE Breadth: 87% Upside Volume (!)
- NASDAQ Breadth: 70% Upside Volume
- VIX: ~$28.25
Markets are enjoying a solid run over the last few sessions. It can be hard to shift gears between long and short, especially when the bias has been leaning so hard in one direction.
On Friday, I asked Danny “thin to win” going into the close? His response was short and sweet and preceded a 25-point ramp into the close.
That “thin to win” reality — the ES ended last week with four straight below-average-volume trading sessions — could combine with the quarter-end balance this week. I believe the rebalance may have already begun, but if the stats are of any help, it could help fuel the fire for a strong finish to Q2.
Game Plan — S&P 500 (ES & SPY), Nasdaq (NQ), ARKK, Energy
S&P 500 — ES
On Friday, we had a very clear plan coming into the day:
The ES is clearing 3800 this morning, which is incredibly key. If it can hold above this level, then the gap-fill at 3896.50 is a possible upside target, preceded first by last week’s high at 3878.50.
It cleared all of these levels and then some. Now we’re sitting at an interesting juncture. Up 4 of the last 5 days — and with the lone “down day,” a loss of just 0.1% — the ES sits at the 50% retracement and the 21-day moving average.
If it can clear 3950 and stay above this level, it opens the door to the 61.8% retrace near 3990. I expect the 4000 area to be a tough zone to clear the first time around, assuming it can get that high.
Keep in mind, the ES bottomed in mid-March and surged 500 points (or 12%) into the quarter-end. If we are in for a similar 12% rally, it would take the ES to 4100, a level of support that failed in early June.
If we get to the 50-day and/or 4100 area, it may be a reasonable zone to start looking at some downside protection.
S&P 500 — SPY
A powerful finish to last week filled the gap near $390. The upside now has two targets for me this week: $395 and $401.
The former ($395) is the 21-day moving average and the daily VWAP measure. The latter ($401) is the gap-fill and the 10-week and 50-day moving averages, although the 50-day is closer to $405.
On the downside, it’s pretty simple. Bulls can’t give up $380 and the 10-day.
Nasdaq — NQ
The NQ roared back to life last week but now finds itself at the 61.8% retrace.
Today, I’m using the Globex range. A break of 12,070 likely puts 12,000 back in play. Below that and the 10-day moving average is on the table. I consider the 10-day and the 11,750 mark as must-hold support.
On the upside, a move over 12,262 that doesn’t reverse lower, could open the door up to 12,400 to 12,450. There we find a prior support level and the declining 50-day.
ARKK
ARKK has been the downside leader in this bear market, however, note that it did not make new lows in mid-June while the S&P and the Nasdaq did. Further, while the SPY is up in 3 of the last 6 sessions and in 4 of the last 9, ARKK is up in 5 of the last 6 sessions and up in 7 of the last 9.
It’s at a key spot now though, with the 10-week and 50-day moving averages. If it can push through, I think it could open the door up to the $50 to $52 area.
On the downside, bulls must see ARKK hold the 10-day and 21-day moving averages for the recent action to be constructive.
Energy has been the leader this year, but it’s been buried over the last few weeks, with the XLE down 25% from the high.
You can see the low came right on support near $70.50, which was followed by an inside day on Friday.
Inside-and-up over $73.11 could open the door up to the declining 10-day moving average. That’s followed by $80, where the XLE finds its 50-day moving average and the 50% retracement.
On the downside, a break of last week’s low at $69.47 could put the 200-day in play.
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 — Still carrying ¼ of the original trade (cost basis: $27.20). 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, we will operate against a B/E stop-loss
- MCK — Second price zone hit on Friday between $320 and $325. Down to ¼ or ⅓. Cash-out if you’d like. $335 is the last upside target on this round. Raise stop to $310.
Relative strength leaders (List is cleaned up and shorter!) →
- BMY
- XLE
- MTDR
- AR
- CLR
- VRTX
- DLTR / DG
- IBM
- ARCH
- NVA
- MCK
Economic Calendar
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.
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