After a weak close on Monday, the ES sold off down to 4654.50 at 3:30 and rallied up to 4682 before opening at 4676 on Tuesday’s 9:30 futures open. The Globex low became an important level later in the morning.
The ES spilled lower in the opening 15 minutes, testing down into last week’s low at 4667 — a level we have been closely monitoring — before bouncing and moving higher. It really looked like the ES and NQ we’re finally ready to find some upside momentum. Breadth was solid on the opening push and buyers were stepping in.
But then both ES and especially the NQ rallied up toward the Globex high and almost instantly lost momentum. From 10:00 to 10:30, the ES shed more than 25 points as it traded back down toward the Globex low.
In other words, the wishy-washy, noncommittal chop remains. So does the pattern of selling the early rallies.
But then the 4654.50 Globex low came back into play, as the ES broke below this level, hit the 21-day moving average near 4650, bottomed at 4649, and went on a strong reversal. This area of potential support (on a push back up through 4654.50) was called out in the room and it gave traders a nice rally back up yesterday’s low, near 4674.
The 4674 area was resistance for the rest of the morning and early afternoon. Finally, at 2:30, the ES was able to push through this level, rallying toward 4683. The day’s prior resistance level became support, as the ES traded strong into the close.
It traded 4681.25 as the 3:50 cash imbalance showed $1.1 billion to buy and shot up to 4691.25 at 3:54. On the 4:00 cash close, the ES traded 4687.25. After 4:00, the ES traded down to 4679 and went on to settle at 4684.75 on the 5:00 futures close, roughly flat vs. where it settled on Monday.
In The End
In the end, I believe I was right on: The ES would see further weakness, then bounce. Just because we have an idea of where the market can go — i.e. up or down — doesn’t mean we should ignore the patterns and the flow of the market. Meaning, I am bullish at the moment, but that doesn’t mean I am oblivious to the ups and downs of the market.
In terms of the ES’s overall tone, it shook off a decent intraday decline only to close strong on the day. In terms of the ES’s overall trade, volume was high again. Monday was 1.4 million and yesterday’s volume was a whopping 1.94 million contracts. It’s what I call pent-up selling and volume is usually higher on the down days.
I know the bears are growling, but they always do. It doesn’t matter if it’s a 40-point selloff or 200…they are always predicting the end of the world.
I am going to keep it short and sweet.
The selloff from the contract highs is a buying opportunity. I know some people think the ES is going down — and it may next week — but not this week.
I am long and I am prepared to add if the ES trades down. I am sure it will be a two-way trade and there will be some rallies to sell, but I’m sticking with the idea that the ES isn’t breaking its back-and-fill pattern. My guess is we see 4700 and higher, but I’m not sure about taking out the 4740.50 contract high right now.
We can get into all of the technicals and specifics — and maybe we should — but the simple fact is this: It’s the day before Thanksgiving, with a half-day coming to us on Friday.
That doesn’t guarantee light volume, but it’s very likely.
They could use that in one of two ways: Lack of follow-through and some lackluster trading or it could turn into a trend day. If I had to lean one way, it would be the former (lack of follow-through) but we’ll see what happens when the gloves come off at 9:30.
My guess is we see a little action out of the gate and slow down into the afternoon. Keep in mind, we have a pretty full economic calendar today too.
Let’s look at the S&P and Nasdaq, followed by setups I’m watching as we head into the next few days.
Above is the S&P futures and below is the SPY. There are many different traders and some love the futures and others avoid them. No one is wrong.
On both charts, you will notice that the S&P broke below our risk level, but both found their footing at the 21-day moving average. This led to a great dip-buying opportunity, especially once the ES traded back up through 4654.50 (which was the overnight low). This was also called out in the chat room.
Despite all the action yesterday, the S&P impressively closed higher on the day. The buyers are still there, they just can’t gain much traction. As Danny said earlier this week: the rallies just aren’t lasting.
Breadth was better on Tuesday, particularly considering this action. We ended at a 55% upside volume day for the NYSE and a 48.5% upside day for the NASDAQ, even as the NQ futures closed lower by 0.43%.
For both charts, a daily-up rotation over Tuesday’s high would be a monstrous development for the bulls. That keeps the ES and SPY over all of its daily moving averages and gives us a rotation higher off a hammer candle.
That would likely put the highs back in play — and this is a setup I am watching — but it’s not one I’m necessarily expecting. Weekly-up over ~$471 in SPY and 4723.50 is still possible, too.
Let’s do the same thing with the Nasdaq: Futures up top (NQ) and the equity down below (QQQ).
I don’t know that we’ve had that capitulation bottom in growth stocks, unfortunately. Clearly, there is a bear market tearing through these stocks, but eventually that will end, they will bottom and we will move higher.
Until then, bulls have to be careful with these stocks, plain and simple.
The Nasdaq has taken the brunt of this selloff, without question. From peak to trough, the NQ has shed 650 points or almost 4%. Compare that to 92 points the ES has fallen (1.9%) and it’s clear where the selling has been.
That said, look at where the strength was before!
The NQ and QQQ rallied in 6 out of 7 sessions and pushed to new all-time highs. Our concern early in the week was the bearish divergence at the highs combined with mixed breadth. However, I always say that divergence is just a piece of the puzzle not the puzzle itself.
It needs some type of rotation to go with it and when Monday’s burst higher unraveled and failed to hold Friday’s high, that was bulls’ chance to pare down risk.
That all said, both NQ and the QQQ are still holding last week’s low, while the 21-day moving average was solid support yesterday.
Just as a daily-up rotation would be powerful for the ES and SPY, it’s the same situation here.
In both scenarios though, we must be cognizant of a daily-down rotation. If we get that and can’t reclaim the low, that could trigger the next wave of selling.
Here are the levels to watch:
SPY: $469.10 upside, $464.45 downside
ES: 4695.50 upside, 4649 downside
QQQ: $400.23 upside, $392.92 downside
NQ: 16418.75 upside, 16,118.50 downside
Individual Setups — Correction Sets Up Opportunity
Here are a few of the setups I am watching now after the latest dip:
SNOW, DOCN — Doji day after a test of the 50-day moving average (a 4H-up rotation could get the party started).
AMD — strongest of the bunch — doji day on the 10-day moving average
RACE — looking for an open into the 10-day. Nice bounce off the 8-day.
JCI — 10-day test and doji candle
ON — Hammer/doji and 10-day test
SBUX — trying for weekly up over $113.65
Below are some of those charts (in order from above).
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!