Three stock setups to watch, plus the dollar, bonds, and S&P 500.
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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 S&P has rallied 14.5% off its 3502 low and 8.25% off the recent 3704 low, while the Nasdaq has rallied 13.3% and 11.7% off its lows, respectively.
Last Friday the ES rallied above 4000 up to ~4010. While many were thinking the ES could continue higher late Friday, the PitBull has a trading rule that says the ES usually stops 20 points above a ‘big figure’ and that it has to make a few attempts before it will actually start pushing through the levels.
Another thing the PitBull taught me was that in the ES, if you are looking to buy the ES at 3950.00, you bid 3950.25 and if you want to offer the ES at 3900, you offer 3899.75. Just pay attention to how many lows are made at .25 and how many highs are made at .75.
I am not saying this will be the case all the time, but it happens quite often, and is the extra tic really worth losing your entry or exit?
This week the fallout of FTXs losses will start to add up, but now Crypto.com is saying that as more customers withdraw their money the CEO admits that there are going to be transaction problems. He also said that the company mishandled a $400 million transaction and the transfer was sent to the wrong account on another exchange.
Remember when $100 million was considered a big loss and losing $1 billion was unheard of? Well, now it’s hundreds of millions and multiple billions and no one bats an eye.
I’m not sure why people would overlook the fact that these companies are unregulated, but the rush to withdraw money is causing a giant liquidity problem that is only going to get worse. We’ll find out who’s exposed in the days and weeks ahead. Many of these companies are sinking so fast that it’s hard to think the contagion won’t continue to spread.
The question is, how will this affect the stock market? Some believe that as the losses add up, it could cause selling pressure. We’ll see. Over the years I have seen some truly dumb stuff, but never the likes of this crisis.
Our Lean — Danny’s Take
This week traders will be keeping an eye on Tuesday’s PPI number to get a feel of whether last week’s lower-than-expected inflation numbers are taking hold.
They’ll also be watching Wednesday’s retail sales, Industrial Production, and the NAHB Home Builders Index. On Thursday, there are Jobless Claims, Building Permits, Housing Starts, and the Philly Fed and on Friday we have Existing Homes Sales.
There are also a lot of Fed speakers this week, with nine members speaking 10 times.
In other words, there are going to be tons of headlines. The question on everyone’s mind is: Can the ES continue higher?
As traders, we are not supposed to fight the trend and right now the trend is up. We still need to get above and stay above 4000 and then the all-important 4100 level. While I think we can see higher prices, I’m not stepping away from saying this could be another “dead-cat bounce” — for now.
Our Lean: The ES is overdue for a 40 to 60-point pullback. Ideally, I want to buy the pullbacks given the current trend, but if the ES gaps higher today, I would sell the early rally and buy the pullbacks.
On the downside, keep an eye on 3970 and 3950.
MiM — Where’s The Money Going?
| Up | Down | Net Flow | |
| Last 20 Sessions | 17 | 3 | $21.05 Billion |
| Last 10 | 9 | 1 | $10.76 Billion |
| Last 5 | 5 | 0 | $8.9 Billion |
**Above is a table of the MIM data, which shows where the MOC money has been flowing over the past five days (week), the past 10 days (two weeks), and the past 20 days (past month). We are working on getting a chart up for this!**
Technical Edge
- NYSE Breadth: 77% Upside Volume
- Advance/Decline: 65% Advance
- VIX: ~$24
Last week’s action was quite impressive on the long side and many measures are lining up for the bulls. But one glaring disappointment is breadth.
Put simply, almost every major low over the last 15 years came alongside a robust burst of upside breadth alongside a strong reading in the advance/decline ratio.
For bulls, it’s disappointing that the SPX rallied 6.75% and the Nasdaq rallied 9.4% in two days, yet all we got was an 87/88 day (87% upside breadth and 88% adv/dec) and a 77/65 day.
For me, I would either need to see a 90/90 day for confidence to build significantly or at the very least, back-to-back 80/80 days.
The lack of either development does leave me lacking confidence, but as always, we will let price be our guide.
Let’s get to work.
S&P 500 — ES
I don’t know if we will get it, but I’d love a dip to the 3920 level and the rising 10-day moving average.
However, if we saw that setup, it would be a very good test for the bulls to see who will take control.
After running into a key juncture at the 61.8% retrace on Friday, a modest dip or a pause would do the bulls some good today.
ES — The Trade
Above is the H4 chart for the ES. I want to see we can find some support around 3970 and the rising 10-ema.
Otherwise, we may need a retest of Friday’s low near 3950. Ideally, a quick undercut of this level and a bounce could get us into a nice cash-flow bullish reversal (i.e. a break of 3751, a shallow low and a reclaim of 3951 to get us long).
SPY — Daily
SPY has a similar look on the daily, as it runs into the 10-month ema and the 61.8% retrace of the current range.
I’d love a pause, with the rally eventually going toward the $408.50 gap-fill and the 200-day moving average.
On the downside, a test of $390 and the rising 10-day ema could give bulls a great opportunity to test the strength of the current trend. Let’s see if that opportunity comes to fruition this week.
UUP
We’ve got a little early strength to the dollar this week — likely on comments from the Fed’s Waller, who said the Fed is not looking to back away from rate hikes just yet.
I’m keeping an eye on the ~$28 area, which has been pivotal this year and is also where the 200-day moving average comes into play.
For the DXY, it looks like this:
CAH
Keeping a very close eye on ~$71.50 today and tomorrow.
LNG
Hopefully it takes about another week, but I’d love a combo test of ~$150 and the 200-day sma. Both have been solid support and this one has paid us very nicely this year.
CCRN
Not for everyone, but CCRN is holding $30 for now.
If it opens around $30.50, bulls could be long against $29.50 to $29.75, giving them a risk amount of $1 or even a little less if they want to be conservative.
The goal would be to trim ⅓ at $33-ish, then be out of ½ at $34.50 to $35.
Maybe not an A+ setup, but the R/R is there if it works.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the trades that are open. g
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
Open Positions
- MCD — Trim some $275/$276. Can be down to ½ position if we see $277-278. Can use $268 stop.
- TLT — I am long some TLT from ~$97.50 as flagged from Friday, but looking to fill out the position at/near $96. (Not saying to follow necessarily, just trying to be transparent).
Relative strength leaders →
Money rotated out of the winners and into beaten-down tech, as you can see many growth stocks roared Thursday and Friday.
- LNG
- CAH
- TJX
- CI
- AMGN
- CCRN
- GIS
- LPLA
- REGN
- ENPH, FSLR — solar has strength
- VRTX
- UNH
- MRK
- XLE — XOM, CVX, COP, BP, EOG, PXD
- NOC
Economic Calendar
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