Our View

Of the 1,342 actively managed U.S. stock funds tracked by Morningstar, only 32 managed to end the rolling 12-month period in positive territory by the end of the second quarter. In other words, it’s been tough out there!

For traders, the pattern has been pretty straightforward: The ES sells off down to a new low, rallies, and then makes a new low before trying to rally again. There can be different bumps along the way — like a decline of seven straight weeks — but you get the idea. 

This summer isn’t like anything we have seen in many years as the S&P is in a bear market. Sure it fell 34% during the March 2020 Covid-19 selloff, but at that time, the markets quickly dove, then quickly recovered. We were falling 5% to 10% a day (seriously!) but then the S&P reclaimed those losses and soared to new highs. 

That was ripping the band-aid off and this is death by a 1,000 paper cuts. 

The ES is on an upswing at the moment, but for how long? According to the Stock Trader’s Almanac, it’s the third-best month of the year for the S&P. On the flip side, it also starts the ‘worst 4 months for the Nasdaq’ and is prone to elevated volatility after the 4th of July. 

Our Lean 

Is the ES going higher? It’s just after 7:00 PM Monday night and the ES just traded up to 3857.75, up 38 points. It’s thin and there are a lot of buy stops above, but that does not mean the ES is going to go straight up without some shakeouts. 

Our lean, if the ES gaps higher this morning, you can sell the open or the first rally above and buy the pullbacks or just be patient and buy the pullbacks. Remember, if you pick a high or low, it’s usually good for 30 to 40 points.

Use stops, cut down on size, trade less, and pick your spots better. Jobs Friday on TAP.

Daily Recap

The ES opened Friday’s regular session at 3782 and rallied up to 3792.75. From there, it sold off down to the VWAP at 3773.50 at 9:36, and then rallied 42.25 points up to 3816.75 at 10:00. The next move falls right in line with my buy the 50 to 70 handle pullbacks and at 10:42, the ES sold off down to the low of the day at 3753.50, a 69.75 point drop in 40 minutes. 

The next move was up to 3772, back down to a higher low at 3758.25, and traded up to 3791 at 11:18. After the rally, ES sold back down to 3764.50 and it was that low that set up the first trading day of July rally. 

At 12:33 the ES traded up to 3783.50, pulled back down to 3770.25 at 1:08, and then rallied all the way up to 3823 at 3:17 as the early MIM showed $400 million to buy. After a 10-handle drop that sent the ES down to 3813.25, it traded up to a new high at 3833.50 at 3:47. The ES traded 3831 as the 3:50 cash imbalance showed $1.46 billion to buy and traded 38 28 on the 4:00 cash close.

It settled at 3825.50, up 37.75 points or 1% on the day. 

Holiday Session 

The ES opened 3 points higher on Globex Sunday night at 3828.50 and traded down to a low of 3793. From there, it eventually rallied ~65 handles up to 3857.75 on Monday night (July 4th), giving traders some fireworks of their own. 

However, the ES went on to trick lower after midnight ET, as it bleeds down about 33 points on Globex and hovers near the Sunday night Globex low near 3793. 

In the end, the S&P rallied hard but it didn’t go up without some sizable drops. In terms of the ES’s overall tone, it acted firm and there was some good two-way trading. In terms of the ES’s overall trade, volume was decent at 1.74 million contracts traded.

  • Daily Range (Friday): 89 points
  • H: 3833.50
  • L: 3744.50

Technical Edge

  • NYSE Breadth: 22% Upside Volume
  • NASDAQ Breadth: 31% Upside Volume 
  • VIX: ~$28.80

We enter a shortened trading week, which features an FOMC minutes release on Wednesday (tomorrow — but no rate decision) and the jobs report on Friday. 

The S&P acts like it wants to rally, but was Friday’s rally just some thin-volume holiday short-covering or actual strength from the bulls? I guess we will find out. 

On Friday, we had two individual stock trades trigger, so let’s revisit those, along with the indices.

Game Plan: S&P 500 (ES & SPY), Nasdaq (NQ), Bonds, Individual Trades

S&P 500 — ES 

The ES had a nice rally off the June low, climbing in 4 out of 5 sessions. However, it then fell in 5 of the next 6 sessions. On the plus side, it did not make new lows and it held the 61.8% retracement in back-to-back sessions. 

Now we find out what the ES is made of. 

If it can hold the 3750 area as support, bulls can continue to push higher. However, the levels of active resistance are piling up: 3807, the 10-day and the 21-day moving averages. 

If the ES holds 3750 and clears these hurdles, there is a clear path to the 3920 to 3950 area. On the downside, a break of 3740 puts 3700 in play. 

S&P 500 — SPY (Daily and Weekly)

The SPY setup is simple: 

Daily-up over $381.70 (and thus over the key $380.50 and the 10-day) is bullish and puts the 21-day in play. 

Daily-down below $373.80 (and thus below the 61.8% retracement) is bearish and puts $368.80 to $369.38 in play (the 78.6% retrace and the gap-fill level). 

On a weekly chart, it still wouldn’t surprise me to see the $350s and thus, testing the major post-Covid breakout area and the 200-week moving average. In fact, I wish it would just get it over with and do it sooner rather than later. 

Nasdaq — NQ

The 11,350 to 11,380 area has been vital over the last two days as the NQ chops around the 61.8% retrace.

The setup doesn’t look all that attractive (trend is down and NQ is leaning on support). 

A break of 11,350 that isn’t reclaimed could be a nice short setup that puts 11,200 in play. 

MRK

After an awesome rally and a pullback to active support, MRK is bouncing. 

I am looking to trim in the $93 to $93.50 area. If MRK sees $95, I will be out of ½ of my position. 

The VIX remains elevated and that means I am taking what the market gives me and being quick to take half my position off and move to a break-even stop-loss. 

DG

A similar situation in DG, as I’ll be looking to book ⅓ profits at the $248 to $250 area. If this stock sees $250 to $252 today, I will be out of ½ and looking for $256 for the second tranche and $260 to $262 for the last portion. 

On the downside, I’m going with a near break-even stop-loss of $242.75. $243 has been clear support. If it fails, I’m out. 

ZB

If Bonds go weekly-up over 141’11, then we could see a push up to the 144 area and the 21-week moving average. 

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.

The VIX remains stubbornly high, which really creates a tough situation for trading individual stocks. Despite that, we continue to carry two “stress-free” trades and now have two more to add to the list. Let’s see if they can get us to a trim spot so we can raise our stops. 

  1. DXY / UUP — Still carrying ¼ of the original trade (cost basis: $27.20). On the upside, I’m still looking for $28.20+ to trim more. 
    1. $28.50 to $28.65 is the next meaningful upside target. 
    2. On the downside, we will operate against a B/E stop-loss 
  2. 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
  3. DG — Support at the 10-day → Looking for $248 to $250 as the first upside target, followed by $250 to $252. On the downside, honestly, I’m going to operate against a stop-loss of $242.75 — almost a B/E stop-loss at this point. $243 is clear support. 
  4. MRK — looking for $93 to $93.50 as the first upside target. Using $90 as my stop. 

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

  • *Look at the strength in health care*
  • BMY
  • MRK
  • ABBV
  • UNH
  • JNJ
  • XLE
  • CLR
  • VRTX
  • DG
  • IBM
  • MCK

Economic Calendar

As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.

As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.

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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