Our View

Doesn’t it always feel “busy” in the market now? Well, that feeling is a reality now. 

Aside from all the geopolitical issues at the forefront — Covid, Monkeypox, global warming, and the ongoing war in Ukraine — we have a huge week of earnings, including Meta, Amazon, Apple, Alphabet, and Microsoft all reporting, the two-day Fed meeting, and to top it all off, the last trading week of July. 

Things are changing so fast that there is no way any one person can consume it all; as traders, we get blasted by it. Last Friday the ES traded up to 4016.25 and dropped 75 points. I think we are all learning the same thing: it’s not hard for the ES to drop 70 or 100 points. 

Like I always say, “I’m a bull, but I ain’t no fool.” The ES has rallied over 10% from its June low to last week’s high. I think the higher the S&P goes, the more susceptible it becomes too quick, sharp selloffs as we saw on Friday — “bear raids.” 

With the S&P up 5% so far in July, it’s very clear that weak earnings are not scaring the buyers away. 

According to Bank of America’s global fund manager survey for July, investor pessimism is at a “dire level,” while the market mood is “max bearish.” Such bleak sentiment is often a contrarian signal that suggests stocks could rally in the coming weeks. I think we are already seeing part of that, but I still do not think we have seen the lows. 

Our Lean

To really start moving higher, the ES needs to clear and close above 4020. On the downside, it’s a little trickier. I am watching 3930 — just below Friday’s low — then 3920, 3909, and 3898 followed by a big area of support between 3835 to 3845. 

In addition to what looks to be a busy week, Friday is the last trading day of July. That’s right! Just five trading sessions are left in the month. I really get the feeling we are going to see some big swings in both directions. 

Our lean is to remember that the ES tends to go sideways or higher after a big selloff, but more specifically, we’re looking to buy the early weakness. If that idea works we will be looking to sell the rally using tight stops. Remember, less is more right now.

Daily Recap

The ES traded down to 3980 on Globex and opened Friday’s regular session at 4003. The ES quickly rallied to 4409, dropped down to 3993.50, traded up to 4012.50, and then traded back down to 4000 at 9:47. It was a busy 15 minutes. 

After the low, the ES rallied up to a new high at 4016.25 and then sold off down to 3886.50 at 10:07, then popped up to 4004.25. The ES back-and-filled for the next 45 minutes, traded 4006.75 and then a wave of sell programs hit that pushed the ES all the way down to 3941.50 at 2:14, 75 points off the high of the day. After the low, the ES slowly started to short cover and traded up to 3964 at 3:30 and then dropped down to 3950.

It traded 3955 as the 3:50 cash imbalance showed $1.28 billion to buy and closed about 10 points higher at 3965.50 on the 4:00 cash flow. The ES settled at 3963.25 on the 5:00 futures close, down 36.25 points or 0.91% on the day.

In the end, there is only one thing to be said: Long and wrong. In terms of the ES’s overall tone, it was weak pretty much all day. In terms of the ES’s overall trade, volume was steady with 1.68 million contracts traded. That’s about in line with the current average (1.7 million contracts a day). 

  • Daily Range: 74.75 points
  • H: 4016.25
  • L: 3941.50

Technical Edge

  • NYSE Breadth: 21.5% Upside Volume
  • NASDAQ Breadth: 28% Upside Volume 
  • VIX: ~$24

Game Plan: S&P 500, SPY, Nasdaq, QQQ, COST, PEP, US Dollar

S&P 500 — ES 

We came into Friday “a little cautious” and I am glad we did. We start a fresh week today, but a busy one. 

Danny’s right. On the upside, bulls gotta clear the 4010 to 4020 area.

Last week’s high is 4016-and-change. A weekly-up rotation that doesn’t reverse lower opens the door to the 4085 to 4100 level. This is where the ES broke down from in June. 

On the downside, 3920 has my full attention. Not only was that the 50% retrace of the prior range, but it’s now where the 10-day ema comes into play and is a key short-term support area (the last three day’s worth of lows are 3922, 3930, and 3940).

Losing 3920 opens up 3900 or lower. 

A Trade on the S&P 500 Futures

Zooming in to last week’s range on the 30-minute chart, I am first watching the Globex low near 3950. This has been notable support in the overnight session, with the 200-unit sma coming into play nearby. 

If this zone does not hold, Friday’s low may be on tap for a potential test near 3940. That’s also where the 38.2% retracement of last week’s low comes into play. 

I will be looking at both areas as potential buy areas if support comes into play. 

S&P 500 — SPY 

$400 was a reasonable area for the bears to hold as resistance. 

While it seems like a wide range, we have clear lines in the sand for SPY. On the upside, bulls need to break through $400 to $401.50. On the downside, bears need to break through $390 (and the 10-day and 50-day moving averages). 

Nasdaq — NQ

If the NQ sees 12,250, I will be looking at it as a potential buying opportunity. It’s the top end of prior resistance and the 10-day ema. 

QQQ

For the QQQ, that “buy” level is $296.50. 

Bulls will know rather quickly whether these support levels are going to hold or fold and they can react quickly in such an instance. That’s why I like these “do or die” levels. We know right away whether they will work or not. 

COST

Costco was crushed from its Q1 and Q2 highs and on Friday, it was rejected by the 61.8%. 

If we see this one pull in a bit, I’m interested in a buying opportunity in the $515 to $516 area. Not only is COST off our Relative Strength list, but in that area we have last week’s low and recent support, along with the 10-day and the 200-day moving averages. 

PEP

Not sure how it will resolve, but keep an eye on this one. PEP has a “bull flag” look to it, IMO. 

Weekly-up is $171.25 and earnings are out of the way. 

UUP 

Last but not least, I said a few days ago we need to keep an eye on the UUP and with the Fed due up later this week and with support still in the $28 to $28.25 zone, it’s one to watch. 

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.

Trade Sheets: Down to 1 individual holdings against a profitable stop-loss.

  1. 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 (and has since been hit). 
    1. Moving stop-loss up to $315 and given the consolidation, I am thinking of holding my last ⅓ for a push to $348 to $350. 

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

  • DLTR — cruel action on our stop-loss, but “defense first!” 
  • COST
  • PEP — Bull Flag
  • ABBV
  • UNH
  • XLE
  • VRTX
  • DG
  • MCK — waiting on a breakout

Economic Calendar

This may get some coverage today, given the market’s tendency to observe the 2y/10y spread: 

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!

Categories:

Tags:

Comments are closed