Our View

Stocks, bitcoin, crude oil, beans, wheat and corn all sold off sharply yesterday over growth concerns, while the energy companies were the biggest losers in the S&P. Crude oil dropped down into an area of technical support, which we have highlighted both days this week. Anyone that caught that drop should take the week off to enjoy some rest; they earned it. 

In any regard, we’re seeing energy finally lose its luster. Is it the final shoe to fall or just one more straw to break the camel’s back? Today’s the CPI report and traders will be zeroing in on the inflation data.  

In a note to clients Tuesday, Citigroup analysts said, “We think it is unlikely that the June consumer price index (CPI) will be the first in the string of softer inflation prints, the markets could still be particularly sensitive to another upside surprise.” They added that: “Over the coming months, however, there are some downside risks to CPI from softer goods prices and for cars in particular.” 

Crude closed Juned at $109.78. This morning it traded below $94. RBOB did the same thing, going from $3.73 down to $3.23 and looking like it’s on its way to $3.00. Housing is slow to move but 5% to 6%+ 30-year rates will weigh on demand. That said, I don’t know how much of this will actually show up in the June report, as it is a lagging indicator. 

There’s a way to trade it, though. 

Our Lean

The ES has closed lower three sessions in a row and has sold off 117 points from Friday’s 3922 high. 

I don’t like the markets and despite talk of a softer number I think things are still very HOT. Hard to believe with gas prices so high the number can be friendly.

For the ES, 3800 and 3740 are the levels to watch on the downside. On the upside, 3875, then 3900 are the zones to watch. Above 3900 and 3920 will be key for the bulls. Lets face it we are still in a bear market and that is not going to change anytime soon.   

Daily Recap

The ES traded down to 3820.75 on Globex and opened Tuesday’s regular session at 3850.50. After the open, the ES printed 3849.25 and then rallied up to 3876.50 and sold off 36 points down to 3840 at 10:05, then rallied up to 3868.50 at 11:31. 

After some back-and-fill, the ES then traded up to 3869 at 1:00, which helped set up the late-day low all the way down at 3804.75. That was hit at 3:39 and after doing so, the ES climbed up to 3818 at 3:49, traded ~3815 as the 3:50 cash imbalance showed $519 million to sell, traded up to 3825.50 at 3:54 and traded 3824 on the 4:00 cash close. 

After 4:00, the ES made a low of 3818.25 and a high of 3824.75 and settled at 3823.50 on the 5:00 futures close, down 33 points or 0.86% on the day.

In the end, the ES dipped and ripped in the early parts of the day, but fell apart late. Pre-CPI fears clearly drove the action. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, volume was low at 1.6 million contracts traded.

  • Daily Range: 71.75 points
  • H: 3876.50
  • L: 3804.75

Technical Edge

  • NYSE Breadth: 41% Upside Volume 
  • NASDAQ Breadth: 50% Upside Volume
  • VIX: ~$27.25

Game Plan: S&P 500, Nasdaq, Oil, DLTR 

It’s all about the reaction to the CPI report. That’s it. 

If the market likes it, we can rally off 3800 in the S&P. If it doesn’t, 3740 is going to be in play very quickly and it will be important. 

S&P 500 — ES 

When we’re stuck in a range, the setup can sound like a broken record. 3807-ish is holding for now. 

If we dip on the CPI print, 3740 is going to become very important. On a rally, keep an eye on 3876 (Tuesday’s high). A daily-up rotation puts 3900 in play, then 3920 to 3950. 

S&P 500 — SPY 

Notice how we keep working level to level. $380 is holding for now. We’ll see how it looks post-CPI. 

A break could put $374 in play. For bulls, that’s must-hold support. On the upside, $386.16 is the level to clear. Above it opens the door back to $390+ 

Nasdaq — NQ

The 50% to 61.8% retrace zone between ~11,700 and 11,795 remains support. If the NQ loses this zone, it could open the door back down to the 11,350 to 11,400 zone. 

On the upside, a move back above 11,875 puts 12,000 in play, followed by 12,200. 

Oil — CL

Is this chart of oil beautiful or what? 

We got that daily-down flush that took CL below $100, which triggered all the sell-stops and put it right into our target: $95 to $96 and even put the overshoot level in play near $93.

Now we see if oil can find its footing in this region. Back above $96.50 — and really, the number to watch is $97.37 — and we may see a push back toward $100. 

Below $93 and we could see /CL dip toward the $88 to $89 area. 

DLTR

Perfect. $167 to $168 is the first upside trim zone. 

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.

Trade Sheets: 

  1. MCK — We have hit two trim zones so far on MCK. Feel free to cash the last ⅓ of the position as you see fit. $335 to $340 is a potential upside target if it continues higher. Moving stop-loss up to $315
    1. $335 hit on Monday, up to you on how to manage from here. I’m holding the last ⅓ against a profitable stop-loss. 
  2. DG — We got our second price target at $256 → That leaves us with one tranche left and looking for $260 to $262 with it. Stop at (~$242.50)
  3. MRK — Hit Targets 1 & 2 → Now out of ½  
    1. $90 to $91 Stop Loss (or B/E).
    2. Looking for $95+ for ¼, then not sure. Maybe hold the last ¼ for a push to $100 if we don’t get stopped out. 
  4. GOOGL — Booyah! GOOGL gave us our target at $2,375 and is now into a resistance area. I am out ⅔ here and may fish for a push to the $2,450 to $2,500. 
    1. B/E Stop ($2,270) 
  5. DLTR — Long entry triggered. $167 to $168 is the ideal first trim zone. 
    1. Stop-loss is at $160 to $161 on a closing basis.

Potential Shorts to watch:

  • AR
  • ARCH
  • PG — weekly down $142.50

Relative strength leaders (List is cleaned up and shorter!) → 

  • DLTR 
  • MRK
  • PEP
  • ABBV
  • UNH
  • JNJ
  • XLE
  • CLR
  • VRTX
  • DG
  • IBM
  • MCK

Economic Calendar

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Disclaimer: Charts and analyses are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!

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