After a very quiet, low-volume grind yesterday, things are set to change this morning. Some models are calling for a higher-than-expected CPI number, at 6.8% vs. 6.5%. That would be a disaster for the S&P, although I do think there is a possibility that the ES could shake off the weakness and rally — a “possibility,” not a certainty.
We talked about the German Dax yesterday and for good reason. This thing just continues to scream higher. It settled at 15,855 on the last trading day of Dec 2021 and we are currently trading 15,050, only down 800 points, down just 5% from where it settled at before all this mess began and down just 7.5% from the all-time high.
Germany is facing a far tougher situation than the US. The energy shortage is killing Europe and while the Russia-Ukraine conflict isn’t on their doorstep, it’s on the same street, so to say. Not to mention, inflation is still a big pain point over there too.
Despite all that, the Dax is creaming higher and is now higher by more than 26% from the October low. The S&P 500 bottomed a little later in October and is up 13.7% from that low. So if you’re looking for relative strength in the indices, the Dax is where you’ll find it for now.
Our Lean — Danny’s Take
The PitBull says that the first two weeks of the new year are always tough and I have to agree. To summarize, the CPI number will have the futures up or down 100 points. If the ES gaps higher I am selling the open. My guess is there will be a lot of trade between 8:30 and 9:30.
It’s kind of a separate 1-hour session until the day session, given the binary nature of the CPI print. Either it’s low and the bulls get another catalyst or it’s high and they get run over.
Remember the December 13th CPI report when the ES rallied 3.85% and although it still closed higher on the day, settled lower by 3% from the high? That came on lower-than-expected inflation results across the board, so the action can be quite tricky here.
I want to get a look at the price action for the first 30 minutes then send out an update.
As for initial levels, we got our 3985 to 4000 zone yesterday. On the upside, 4030, then 4090 to 4100 stand out to me.
On the downside, 3920 to 3928 are key, followed by 3900. Below 3891.50 and bulls are in trouble.
MiM and Daily Recap
The ES traded up to 3960 on Globex Tuesday and opened at 3957.50, where it chopped between 3967 and 3955 for the opening hour. Then the low gave out, as the ES traded down ~3949 at 10:55, reversed off the low and traded up to a new high at 3971.50 just after noon. That kickstarted a steady march higher where the bulls bought the small 7-10 handle pullbacks all through the afternoon.
At 3:50, the ES traded 3982.75 as the MIM showed almost $1 billion to buy, then traded 3990 at 4:00 and settled at 3992.50 at the 5:00 futures close.
In the end, the Dax added another staggering 276 points again yesterday, which I feel in turn is dragging our market up. In the last eight trading days the German Dax has gone up 1170 points. In terms of the ES’s overall tone, it was firm but not as firm as the NQ. In terms of the ES’s overall trade, volume was LOW at 1.33 million contracts traded.
NYSE Breadth: 72% Upside Volume
Advance/Decline: 77% Advance
We’re running light today ahead of the CPI. Will be back after the report with individual trade updates and potentially a refresh on the charts.
S&P 500 — ES
The 4030 is where downtrend resistance and the 61.8% retracement come into play. However, that’s just 30 points above current levels. If they want to rip the S&P higher, 4030 isn’t likely to be the lid.
Above 4030 is the 78.6% retracement near 4095. Above that could technically put the December high in play.
On the downside, the 3920 to 3928 area is big. Aside from being a key pivot, it’s also where the 10-day and 50-day moving averages are, as well as last week’s high.
A break of this week’s low near 3891 and the ES could be looking at a return to 3800 or lower.
The SPY would need to clear the $397 to $398 area to get there, but if it’s running hot, the 50-week moving average is one potential upside target, followed by $410, which has been resistance since September.
On the downside, holding $390 would be ideal for bulls. However, $386 would be key as well, where it finds the 10-day and 21-day moving averages.
Below could open the door back down to the $377 to $380 area.
Open Positions —
A note: After talking to some members, I want to make the setups a bit more clear. We are a trade-ideas service, but want to make entries & exits simpler to understand. We will be sending more updates, a few educational pieces and looking for a way to make our setups more clear in how we are managing them.
Numbered are the trades that are open.
Bold are the trades with recent updates.
Italics show means the trade is closed.
TLT — Down to ⅓ after TLT’s strong push to $105 on Friday. Raising stops to $100 or $101 and (I personally) am just leaving a runner against the stop.
Now you can handle this however you want. $106.31 is a gap fill, so is $108.16 and there’s always the declining 200-day sma for the optimists.
DE — Trimming down to ¼ on any push over $440. B/E stop or consider $425 as a new stop. Congrats!
/NG (can use UNG too) — Went for a ¼ trim at $3.90 but was “ideally looking for $4+.” Down to ⅓ or ½ here, your preference.
Now certainly a B/E stop. $4.20 to $4.25 is the next trim spot
COP — Long from $119, the 2x weekly-up. $124 to $127 could be a reasonable trim spot. (Keep in mind, the 50-day is at ~$122, so maybe ⅕ to ¼ trim there just for lunch money).
$115 Stop. Maybe consider getting down to a ½ position if we get back to our basis. I don’t normally like to do that, but yesterday’s action was tricky.
FSLR — ½ position, long at $157.75 — Second trim (⅓ at $165 to $167 as per plan). Trim more between $170 and $173, likely carrying just a ¼ position if we see new ATHs.
TSLA — short from $117. Stop at $123.75. Trim at $114.40 (so close yesterday). Second trim down to ⅓ or ½ at $110.
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
SBUX — nicely weekly-up setup after 10-week ema reset.
TJX, ULTA — looking for pullback here to active support (10-day) given the bearish update from LULU.
LMT, RTX, NOC — RTX best of the bunch
MET — weekly
HON — weekly
FSLR — $140 is the 21-week sma and retest of prior resistance
Disclaimer: Charts and analysis 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!