Danny’s View: Are We Setting Up For Another Chop Day?

Trading Blackberry, Alphabet, MSFT, and MCD.

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Don’t Forget: The Long-term performance of the S&P 500, some longer-term setups, and 5 red flags that showed up before the 2022 bear market. 

Our View

The midterm elections are rolling in, but the main focus is going to be the CPI report on Thursday morning. Last Friday’s labor report did nothing to help change the rate-hiking rhetoric from the Fed, but the biggest component to their decision is inflation. 

That said, one report won’t change the Fed’s mind — either dovish or hawkish — although it could alter whether the Fed decides to go with a 50 bps or 75 bps hike in December. Right now, those odds are sitting near 50/50, with a small lean toward a 50 bps hike. 

In-line or hot results could change that to a 75 bps hike, though. 

I also want to point out the sheer volume we’re seeing in the SPX weekly and daily expirations: 

The CBOE used to offer Monday, Wed, Friday expirations for the SPX, among others (like some a.m. expo, etc). Anyway, it now offers daily expirations on the SPX, which is bringing in adrenaline traders and speculators and — at least IMO — adding to the volatility we’re seeing in the market. 

Our Lean — Danny’s Take

It was only a matter of time before the selling pressure wiped out the dominos in the crypto space. Bitcoin made new 52-week lows as liquidity worries spread through the sector following Binance’s rescue of FTX. 

The term “liquidity issue” always makes traders’ hair stand up because that’s where contagion becomes a risk. I don’t mean to imply that the S&P faces a huge risk because of Bitcoin, but seeing the losses in crypto is just one more thing to add to 2022’s bear market beatings and it adds to the list of uncertainty.

Speaking of the S&P, the /ES was trading pretty well into yesterday afternoon on decent breadth (see below), until some comments from the ECB spooked markets. The market recovered nicely, but it’s been a choppy session during Globex — big surprise.

It’s been one big CHOP trade all week, as market makers burn off some theta and as traders position themselves ahead of the CPI report, which is what really matters this week. 

Our Lean: If I were a bull, I would not want to see a big rally into the CPI print. It would set up the market for a “sell-the-news” reaction. That said, if we flush lower this a.m. and retest the 3792 to 3800 area, I am looking to buy the initial dip. 

Intraday, I have ~3835 as overnight resistance and will respect that area as resistance until proven otherwise. Above it opens the door to 3850. 

Daily Recap

The ES opened at ~3827 and dropped 17.50 points right off the bat. We were looking to buy a dip to 3800, but this bottomed at 3810. Such is life. 

It went on to rally more than 50 handles to the regular-session high of 3867 at 11:40, then back-and-filled in a 12-point range. Just after 1 pm, negative ECB comments started hitting the wire, followed by some negative macro comments from FedEx. That drove the ES down 73 points to a session low of 3792.25 at 2:30. 

The bulls fought back, driving the ES higher by 64 to ~3857 at 3:30 before it promptly reversed and retraced half the rally. At 3:50, the MIM flashed $1.65 billion to buy, but that couldn’t slow the selling. 

The ES ultimately settled at 3835 at the 5:00 futures close, up 20 points or 0.52% on the day. In the end, it was another choppy session. In terms of the ES’s overall tone, there was something for both the bulls and the bears. In terms of the ES’s overall trade, 1.87 million contracts traded, which is low for the last 20 days.

Technical Edge

• NYSE Breadth: 63% Upside Volume
• Advance/Decline: 60% Advance 
• VIX: ~$25.50

Yesterday, the /ES did what we needed it to do, powering over the 3821 pivot, then climbing to 3842.50, then 3860. After the late-day dip, now it’s sort of in no man’s land again. 

I don’t like taking a notable position ahead of binary events — like the CPI tomorrow morning. What I do know is, yesterday’s range matters and today’s will too.

S&P 500 — ES 

Specifically for today, keep an eye on the overnight ranges. That’s ~3849 on the upside and 3812 on the downside. 

A push above 3850 without reversing lower puts 3867 in play. Above that and 3900 is on tap. A break below 3812 opens the door down to 3792 to 3800. 

ES — Zoomed In

Keep an eye on the overnight ranges — the Globex high and low. A sustained break of either opens the door to yesterday’s high or low, respectively. 

If we flush down right out of the gate and test yesterday’s low, I’d like to think this area could give us a bounce. 

SPY

Bulls need to hold $379 to $379.50. Below that and yesterday’s low of $377.72 is vulnerable. A break of that level really disrupts things. 

On the upside, back over $382 is bullish and, technically speaking, could put yesterday’s high in play.  

GOOGL

I like GOOGL, but mega-cap tech has not been healthy. 

This stock is running right into active resistance here on the daily chart and is trading lower in the pre-market. A break of yesterday’s low gives us a daily-doji-down setup. 

Below $87.50 and the $83s could be in play, followed by a possible test of $80. 

FWIW, MSFT has the same setup too. 

BB

I’m not a huge fan of shorting sub-$5 stocks, but if BlackBerry loses yesterday’s low of $4.66 and can’t regain it, we could be looking at a nice short setup in this name. 

MCD

I doubt we see $271 today, but if so, it may be worth taking a shot on. This stock has not touched its 10-day moving average in almost a month. 

If we see it today, I’m a buyer, with an aim to trim at $275 and an initial stop around $267. 

Go-To Watchlist

*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.

Open Positions

1. GIS — Down to ⅓ to ½ after $82 trim. Next trim is $85 to $86, but seems less likely given the climate. Stop at $78 if you’re still in. 

Relative strength leaders →

Top Picks (these have been Robust lately): 

1. LNG 
2. MCK — great reset at 10-ema
3. CAH — monster move. 
4. CI 

• CCRN
• GIS 
• LPLA
• REGN
• ENPH, FSLR — solar has strength 
• VRTX
• UNH
• MRK, AMGN
• XLE — XOM, CVX, COP, BP, EOG, PXD
• TJX
• NOC

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!