Our View
I don’t think there is much we don’t know at this point. Is the ES setting up to go lower? It could be, but while I think lower prices overall are on the way, I cannot rule out further dead-cat bounces.
Did the markets get weak in anticipation of higher inflation numbers on Wednesday? I think that was part of it, definitely. However, the ES and YM both retracted 50% of the move from the 3639 low. Of course, it will not be easy for the bulls — it’s a bear market, remember! — but they are quickly finding themselves in a do-or-die scenario.
Our Lean
On the plus side, the levels for the S&P are pretty clear-cut.
The ES needs a close below 3820 to go lower. Until then, the 3840 to 3850 level may act as good support. 3807 is still meaningful, but a break of that could quickly put the 3740 area in play. That was last week’s low and very key support. On the upside, 3920 to 3950 is resistance until proven otherwise.
I still think this rally won’t end well, but I am taking one day at a time. You can buy the early dip and sell the rip or just be patient and sell the 40 to 60-point rallies. Use stops…learn to live another day.
Daily Recap
The S&P 500 futures opened Monday’s regular session at 3875, down-ticked to 3872.50, and rallied up to 3884 at 9:33. From there, the ES dropped down to 3851.50 at 9:53. After the low, the ES back-and-filled to the upside for the next 30 minutes, traded 3870 at 10:41, sold back off down to 3854.50.
From there, it did another round of back-and-fill, traded back up to 3868.50, dropped back down to 3854.75 at 11:52, then traded back up to 3883.25 at 1:44. After the high, the ES sold off down to 3853.25 at 3:20, rallied up to 3860 at 3:33 and then slowly traded back down to 3850.25 as the 3:50 cash imbalance showed $210 million to sell, printed 3850 a few times and then shot up to 3864 at 3:57 and traded 3862 on the 5:00 futures close, down 43.5 points or -1.1% on the day.
In the end ‘Our Lean’ was spot on: “sell the rallies.” In terms of the ES’s overall tone, the ES was weak, but the NQ was weaker (down 2.2%). In terms of the ES’s overall trade, the total volume was 1.45 contracts traded.
- Daily Range: 50.75 points
- H: 3900.75
- L: 3850
Technical Edge
- NYSE Breadth: 84% Downside Volume (!)
- NASDAQ Breadth: 31% Upside Volume
- VIX: ~$27
Game Plan: S&P 500, Nasdaq, Oil, DLTR
I was wondering if we would get a rally into the CPI report and a “sell the news” reaction or a risk-off approach heading into Wednesday. So far, it’s been “risk off.”
If that continues, bulls will want to see two key levels hold on the S&P going into the event. Otherwise, we can’t rule out a retest of the lows.
S&P 500 — ES
The 3860 support level ended up holding by a thread on Monday but was lost overnight during Globex.
From here, two key levels stand out as support: ~3807 and the 3740s.
Lose the former and the latter is likely in play. Below 3740 (and a close below it) could put 3650 or lower on the table (the lows).
On the upside, I want to see the ES reclaim 3865. Above that opens the door to 3900, then 3920 to 3950 resistance.
S&P 500 — SPY
#KISS — Keep It Simple.
Daily-down below $383.50 (that doesn’t reverse) puts $380.50 in play. Below that puts the key $374 level back on the table.
If yesterday’s low holds (at the 10-day) we want to see a push higher. Daily-up could put $390 in play, then $393.
Work from level to level.
Nasdaq — NQ
The NQ was the downside leader on Monday but is acting as a source of relative strength on Tuesday.
The 50% to 61.8% retrace zone is acting as support this morning, a 98-point range between ~11,700 and 11,795. If the NQ loses this zone, it could open the door back down to the 11,350 to 11,400 zone.
On the upside, a move back above 11,910 puts 12,000 in play, followed by 12,200.
Nasdaq — QQQ
Bulls have to clear $293, then $296.50.
Bears have to break $288, then $285.
Oil — CL
Same observations as Monday. Active resistance from the 10-day and now breaking $100, putting $95 to $96.50 back in play. That’s followed by $93 and the 200-day.
On the upside, oil needs to reclaim $100 and Monday’s low of $110.89 to have a chance at repairing some of the damage.
The bears have control for the moment.
DLTR
Last week I said I’d be looking at DLTR as a potential buy-the-dip candidate. Simply put, I’m looking for the $162.50 to the $163.30 area — the 10-day and last month’s high.
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:
- 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
- $335 hit on Monday, up to you on how to manage from here. I’m holding the last ⅓ against a profitable stop-loss.
- DG — We got our second price target at $256 → That leaves us with one tranche left and looking for $260 to $262 with it. Break-even stop.
- MRK — Hit Targets 1 & 2 → Now out of ½
- $90 to $91 Stop Loss (or B/E).
- Looking for $95+ for ¼, then not sure. Maybe hold the last ¼ for a push to $100 if we don’t get stopped out.
- GOOGL — Booyah! GOOGL gave us our target at $2,375 and is now into a resistance area. I am out ⅔ here and may fish for a push to the $2,450 to $2,500.
- B/E Stop
Relative strength leaders (List is cleaned up and shorter!) →
- DLTR
- MRK
- PEP — trying to rally on earnings. Watch $175 to $177, as it has been resistance.
- ABBV
- UNH
- JNJ
- XLE
- CLR
- VRTX
- DG
- IBM
- MCK
Economic Calendar
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