Our View 

When you talk about the top of the heap in inflation, crude oil sits at the top. Yesterday, European Union leaders agreed to pursue a partial ban on imports of crude from Russia as oil heads for the longest run of monthly gains in more than a decade. As I said over a month ago, crude oil and gas are going to race higher just in time for the summer vacationers to hit the roads. 

It’s obvious that Putin knew short supply would drive up prices when he decided to invade Ukraine, but he probably didn’t think OPEC — his friends — would consider exempting Russia from oil deals. It’s a move that could pave the way for more oil production from Saudi Arabia and the United Arab Emirates (UAE). 

I’m not an economist, but this seems like a perfect time to restart oil and gas production in the US as we head into the summer amid increased shortages. Right now the US needs a few wins and increasing our own production would be a big win.

Our Lean 

I’m not going to be right all the time — no one is. My goal is to help give a feel for market direction from someone who’s been in the game for more than 40 years and with a bulk of that time being spent directly on the trading floors in Chicago. 

Whether you have been reading the Opening Print for two weeks or two years, you already know that reading it gives you a “feel.” I do not use any fancy indicators; I read order flow, fair value and I rely on overbought and oversold conditions. Even the technical section below is fairly simple, relying on key retracement levels and moving averages. 

With all that said, our lean is this: Today is the first trading day of the new month, June. Many times after large month-end MOC buys, there are residual buys from the prior month that are left over and new money for the first trading day(s) of the new month. 

The odds favor a higher close for the Dow, so my guess is if we see some early weakness, it’s probably going to be a buy. 

Knowing how the price action works, we should see some type of early high and fall into a range trade into the middle of the day. Overall I think lower, but if the boys with the better seats have a few billion to buy on the close, my guess is you can buy the dips. Just tread carefully and be mindful of another late day walk away — we flagged that yesterday and it came to fruition in the afternoon. 

Daily Recap

The ES opened Tuesday at 4138, climbed slightly up to 4141.50, and then tumbled down to 4102.75 at 10:10. The ES slowly traded off the low, traded up to 4133.50, chopped within 5 points, then pushed up to 4138.50 at 11:05 before trading back down to the 4115 level at 11:31. 

The next move was a ~44 point rip up to 4158.50 at 12:05. After pulling back down to the 4137.50 level, the ES rallied up to 4160.50 at 12:57, traded back down to 4139 at 1:39, and then back up to 4167.75 at 2:03. The bulls may be in control, but the ranges are still fairly wide. That’s as the ES then sold off down to 4123.25 at 3:04 and then traded back up to 4155.50 at 3:35. 

The ES sold back off down to the VWAP at 4138 at 3:49 and traded 4142.50 as the 3:50 cash imbalance showed $4.8 billion to buy, rallied up to 4154 and traded 4134 on the 4:00 cash close. It settled at 4132.25 at 5:00, down 24.50 points or 0.6% on the day. 

In the end, the buyers marked up stocks on the 3:50 cash imbalance and then sold stocks going into the 4:00 cash close. In terms of the ES’s overall tone, it acted tired. In terms of the ES’s overall trade, volume was steady all day at 2.147 million contracts traded. 

  • Daily Range: 99.5 points
  • H: 4202.25
  • L: 4102.75

Technical Edge

  • NYSE Breadth: 29% Upside Volume 
  • NASDAQ Breadth: 36% Upside Volume 
  • VIX: ~$26

I did some more number-crunching on volume breadth yesterday. In the last ten years, there have only been three occasions where upside breadth tallied 80% or higher in three straight sessions: February 2016, March 2020, and last week. 

In the prior two occurrences, it marked a long-term low. Because the data set is so limited, I expanded my search, looking for three such 80%+ upside days in a four-session span. We had six of those occurrences in the last decade. 

In all of those occasions, it marked the short-term low for the next three months. In five out of six occurrences, it marked the intermediate-term low for the next six months. 

Additionally, the S&P 500 had a positive return in 5 out of the 6 times over the following time horizons: 1 month, 1 quarter and 1 year. In all six occurrences, the S&P was positive 6 months later. 

If you add the stats for three days in a row of 80%+ upside days, the numbers are even better (but that’s not surprising): 

When combined with the stats of the S&P 500 falling in 7 or more consecutive weeks, it’s reasonable that one could be looking for more upside and considering that we may have seen the low for now. 

Game Plan — S&P (ES and SPY), Nasdaq (NQ and QQQ), ARKK, Oil, Wheat

S&P 500 — ES

I’m glad we did this yesterday: “I want to take today slowly after such a strong finish to last week.”

It’s a new month, but I am watching last week’s high near 4168. If the ES clears that level, 4200 is in play, followed by 4220, then the 50-day. 

On the downside, a break of yesterday’s low near 4100 and failure to reclaim that level could open the door down to the 10-day moving average and 4056 level. 

SPY

A lot of people are bemoaning yesterday’s action, but after three straight 80%+ upside days, what more can the bulls ask for? After all, the SPY only fell 0.56% yesterday and for all intents and purposes, basically gave us an inside day. 

A daily-up rotation through yesterday’s high could give us $420 to $421, followed by the 50-day. The one hurdle in the way is the 10-week moving average, which comes into play near Tuesday’s high. 

On the downside, a daily-down rotation could pave the way for a test of $405 and the 10-day and 21-day moving averages. As long as this holds as support, bulls can remain in control. 

CTVA

Still watching yesterday’s setup as a possible trade. 

CL — Oil

Looked like it was breaking out yesterday, but then had a poor close as it tussles with resistance. 

Let’s see if we get a modest dip down to the rising 10-day. Which brings us to…

XLE

Also poor action in XLE yesterday as it hit a new high and then faded hard. I want to see if we can get a retest of the $84.50 area and a tag of the rising 10-day. 

That would be a decent R/R for dip-buyers who are way ahead on the energy trade this year — like us! 🙂 

XOM looks similar too. 

Wheat — ZW

Let’s see if it trades back up through 1114’40. Aggressive buyers may be buying the test of the 10-week moving average, but conservative bulls are looking for a low and a move back through last week’s low (at 1114’40).

AMD

AMD made a new high for May on Tuesday, so a potential monthly-up rotation is not far off. 

If this stock can hold $100 — not only is that a major area on the chart, but also the 50-day and 10-week moving averages — and rotate through $104.50, then we could see a continued push higher. 

If I’m being honest, I don’t love playing the large-range rotation trades in this type of tape and longer-term readers know that. However, AMD has been holding up nicely since reporting earnings a month ago. 

If it loses $100, then we can let it reset first. If it rotates higher, $109 to $110 is in play, then $117 to $118. The ultimate goal would be to trade it back to $125. 

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.

We have been spanking the very select individual trades we have taken. For that, I’m super grateful! It shows that discipline wins out in a tough tape. 

  1. DXY / UUP — 103.50 to 104 would be the ideal first trim area. For UUP, that’s $27.50 to $28. For UUP, conservative bulls may be waiting for a gap-fill at $27.09 and a tag of the 50-day before getting long. 
  2. MRK — Got us our first target above $93. → If still long, don’t let MRK lose the 21-day.  

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

  • These three are on watch for dip-buys:
  • XLE / XOM
  • AR 
  • CTVA
  • DLTR
  • VRTX
  • AMGN
  • MRK
  • MCK
  • JNJ
  • BMY

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.

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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