Our View
Maybe part of everyone’s anxiety over the stock market is just one word: The “unknown.”
In the past, the government stepped in when a financial crisis arose. like in 2008 when the Fed gave out billions to bail out the banks or in 2020 when the world ground to a halt due to Covid. But this is different — and it has a much worse feel to it.
How can the Fed intervene when it just started raising interest rates and now wants to reduce its record balance sheet? Is the plan just to raise rates and reduce its balance sheet to kill demand and inflation, then reintroduce all of those catalysts to dig us out of the hole again?
This is a bad scene for everyone — both in the US and Europe — as inflation and interest rates rise. It may not be as severe in the US as it will be in other parts of the world. It helps that the US is one of the largest exporters of corn, wheat and beans — and also has a strong energy unit — but clearly, the threat of global shortages is increasing, as are geopolitical tensions with Putin.
It’s not hard to see the impact, either. The small, blue-collar guy that was already paying $300 a month on gas to get to work is now paying $600+. It’s pinching those who live paycheck to paycheck and the people it hurts the most are the people who can least afford it!
Lastly, according to Deutsche Bank analysts, 8 of the last 11 extended Fed rate-rise cycles have eventually ended in recession. My Street smarts says this is a bad time to make any major financial decisions. Be smart and remember, cash is king!
Our Lean
I didn’t think the bullish Dow stats would hold water and as the bonds fell on Wednesday, so did the stock market. Is the next 200 points in the S&P 500 up or down?
I’m not sure, but one thing to know is June has not closed lower on a monthly basis since 2016 when it fell — get this — a whopping 0.23%. While I still think we’re eventually going a lot lower, I also think you have to be agile as the summer rolls in. There are going to be some wicked rips and dips that should set the tone for a low in September or October and a year-end rally.
I know it’s easy to think higher prices are coming after a bounce, but the odds do not favor it being sustainable. If you think the train has rolled off the tracks recently, you have not seen anything yet.
Based on the weak close, I expect to see lower prices on Globex. I can’t rule out buying weakness into 11:00, but I think you now sell any 40 to 60-point rallies. It goes back to the MrTopStep trading rule that says, “The ES rallies early in the day and early in the week during bear markets.”
As you have seen, the late-day rallies and big MIM buys have resulted in several late-day walk-aways lately.
Daily Recap
The ES traded down to 4125.75 on Globex and opened Tuesday’s regular session at 4156.75. It traded up to 4165 at 9:55, pulled back a few points, made a lower high at 4155 at 10:00, and dropped ~62 points down to 4093.25 at 10:37.
After the low, the ES bounced up to 4113 going into 11:00 and then reversed down to 4072.75 at 12:13, rallied up to a lower high at 4088, then traded down to a new low of 4071.50 at 12:52. Bulls regained control for a bit, rallying the ES 54 handles up 4125.50 at 2:28, before an ~18 point dip sent it down to 4107.75 just before 3:00.
The ES traded 4120.75 as the 3:50 cash imbalance showed $2.1 billion to buy, rallied up to 4124.75 and sold off down to 4100.50 at 3:57, and traded 4099 on the 4:00 cash close. The ES settled at 4097, down 34.25 points or -0.83% on the day.
If we learned anything, it’s selling the early gap up in the ES after a near-400 point rally. In terms of the ES’s overall tone, it acted weak. In terms of the ES’s overall trade, volume was on the lower side at 1.85 million contracts traded.
- Daily Range: 93.5 points
- H: 4165
- L: 4071.50
Technical Edge
- NYSE Breadth: 34% Upside Volume
- NASDAQ Breadth: 33% Upside Volume
- VIX: ~$25.75
The action over the last few days has been choppy and forced many traders to utter one of my favorite sayings when it comes to price action: “This shit is shit.”
However, we came into the week after a monstrous finish to last week. The goal has been not to give back too much of those profits. The reality is that the S&P 500 climbed 6% in three days and has now dipped 2% in two days. From the low on May 20th, it’s still up 7.6%.
Game Plan — S&P 500 (ES and SPY), Nasdaq (QQQ), AR, XOM, Energy
We went through a ton of stats over the last few days, most extensively yesterday. If you haven’t had time to read them through, please give it a look!
I’m not saying that we’re guaranteed the low is in for the moment, but I’m saying that if traders do want more upside from here, they must also realize the market needed to rest a bit after big upside thrusts.
S&P 500 — ES
I’ll say it again: “This shit is shit” and you’re hearing that a lot from people trying to day trade over the last two days. It’s been a choppy mess out there. But it was the end of May and the beginning of June.
The month-end action can be choppy sometimes. I see it is a reasonable two-day consolidation after a big up-push.
From here, we need to see the 4050 level and the 10-day moving average hold as support. If that happens, bulls can remain in control. It’s as simple as that. Lose 4000 and this thing gets a bit uglier.
On the upside, clearing 4168 — last week’s high — gets us 4200, then 4220.
SPY
Same deal as the ES. Clear $415.50 and it could unlock $420 to $421.
On the downside, this needs to hold $405 and the 10-day. Below the 21-day — and especially below $400 — creates a state of caution for longs.
Again, we did quite well last week. There’s no need to force anything right now; let it come to you and we will keep banking the “mental capital” while we wait.
Nasdaq — QQQ
I left out the Nasdaq yesterday and almost did today, except some readers were looking for an update. Really, it’s the same as the SPY.
The QQQ needs to hold $300 and the 10-day. Below and I’m not interested in it.
It has tried twice this week to rotate over last week’s high of $309.25. If it can today, it puts yesterday’s high in play at $312.65. Above that puts the 10-week moving average in play.
AR
Currently dipping in the pre-market, let’s see if we get a tag of the rising 10-day ema. Below it puts $39.25 in play.
XOM
Today’s OPEC meeting could really move the needle on oil prices and thus energy stocks.
For XOM, I’m watching the 10-day, which has been active support on the recent rally. However, if that fails as support, my attention will move to $92 and the 21-day.
I want to keep trying to buy the dips in the leading stocks, as energy has worked all year and XOM has been a huge winner for us.
However, you could make the case for a number of energy stocks, including: MRO, CNQ, SLB, COP and EOG. (EOG and SLB charts here).
Go-To Watchlist — Individual Stocks
CTVA — Still watching this setup as a possible trade.
AMD — Watching for monthly-up over $104.55.
XLE — Watching for potential dip-buy into the 10-day ema.
*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.
- DXY / UUP — Can trim into the $27.50 area as the first target. More aggressive longs can look for $27.70 to $27.75 first if they’d rather, but ¼ to ⅓ here makes sense to me.
- MRK — Stopped out after achieving our first upside target. That’s fine. We’ll wait.
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.
Comments are closed