It was an 84% downside day yesterday.
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Don’t Forget: The Long-term performance of the S&P 500, some longer-term setups, and 5 red flags that showed up before the 2022 bear market.
Our View
On the bulls’ side, the ES has been back-and-filling in the 3920 to the 3960 area for weeks. Every little pullback has been bought and has not shown many signs of wanting to go down much. When I look at the monthly chart for the ES, I see a lot of consolidation and the dips being bought.
On the bear’s side, the Dow made its low on October 3 at 28,635 and all but retested it on October 13 when it hit 28,671. The high was made on Friday, November 25 at 34,393. Yesterday it traded down to 33,805 — 588 points off our highs.
Powell’s commentary on Wednesday is likely to lean hawkish — or at least that has been the trend — but we’ll see if the market buys it, as investors are pricing in a slowdown in rate hikes.
Our Lean — Danny’s Take
Am I surprised by yesterday’s sell-off? Not at all! That’s why yesterday’s Lean said, “we cannot rule out buying the open for a scalp, but we think today is a sell-the-rallies day.”
The ES fell 1 point after the 9:30 open, then rallied almost 20 handles in the first 5 minutes of the day.
Nor was I surprised by yesterday’s MIM flip from a sale to a buy (note: Please take a minute to study the MIM chart below. We have now charted the MIM data and it helps illustrate the “follow the money.”)
At 3:36 I said, “I smell a rat” and the futures rallied 10 handles after the MIM and 4:00 cash close. I said it’s in the form that it felt like everyone was short and then the guys with the better seats show up with a big buy imbalance. Sometimes you can just feel it — or maybe that’s just me from working the floor orders for 3+ decades.
So where from here? I think there are two scenarios.
- The ES is going back down to the 3810 level or
- We just keep playing “water in the bathtub” where bulls push the water one way then bears push it back the other way.
Our Lean: Today is T+2. My guess is the ES bounces today and while I can’t rule out selling the rips, it feels like a rebound is in store today. If the NQ is firm, buy the ES pullbacks.
MiM and Daily Recap
The ES opened Monday’s regular session at 3998.75. After the open the ES rallied up to 4017.75 and traded down to the Globex low 3985 at 12:03 and rallied 19 handles up to 4004 at 12:05. The ES chopped around for the next 45 minutes and then sold back off to the 3985 low at 12:54 and finally broke the low down to 3960.25 at 3:35. It traded up to 3968 as the early cash imbalance showed $320 million to sell.
The ES traded 3961.50 as the 3:50 cash imbalance “flipped” to $720 million to buy, traded 3964 on the 4:00 cash close, and settled at 3971.50 on the 5:00 futures close, down 62.25 points or 1.54% on the day.
In the end, the NQ was the main source of ES’s weakness. In terms of the ES’s overall tone, it was a sell-the-rallies kind of day. In terms of the ES’s overall trade, volume was low at 1.428 million contracts traded.
Technical Edge
- NYSE Breadth: 16% Upside Volume (!)
- Advance/Decline: 21% Advance
- VIX: ~$22
We took yesterday slow, with an attempt to buy the dip as the S&P pulled back into active support via the 10-day moving average. That measure was enough to halt the index’s decline on Monday, but now we’ll see who takes control.
If the bulls cough up the ball, we could be looking at ES 3920 and SPY $390. However, if bulls remain in charge, we should see a bounce today.
The dollar is back under pressure, but faces a key level too (charted below).
S&P 500 — ES
There has been decent demand in the 3940 to 3950 area. However, we’re seeing a timid bounce this morning.
Keep an eye on two levels today: The Globex high at 3990 and yesterday’s low at 3960.
A break of 3960 technically opens the door down to 3920 and the 21-day moving average. It may not get there, but it’s what becomes possible should the ES break 3960 and fail to reclaim it.
On the upside, clearing 3990 opens the door to 4000+
SPY — Daily
Support came into play yesterday at the 10-day ema. It stemmed the bleeding, but it’s not clear whether it will lead to a tradeable bounce or give out.
Keep an eye on yesterday’s low at $395.11. If the SPY loses that level and can’t reclaim it, it opens the door down to $390 and the 21-day.
On the upside, see how the SPY handles a bounce to the $398 to $398.50 area. Above that puts $400+ and $402.50 back on the table.
Dow
The DIA is down into active support, as the 10-day moving average has been support for more than a month now.
If it fails, look for $333 to buoy it. If it holds, $343 is back in play.
Dollar — DXY
The goal for the DXY and the short-dollar trade was to exit the rest at the 200-day moving average. That worked wonderfully and now we see if the bounce is short-lived into active resistance or if the dollar stages a larger rebound.
If the latter, that does not bode well for equities.
TJX
Keep an eye on the $77 to $78 area for TJX. This has been a relative strength leader and recently made new ATHs.
We want to buy the dips so long as the market doesn’t start throwing a tantrum.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
Open Positions —
- TLT — Now ⅓ to ½ position here. Raise stops (B/E at minimum) and looking for $104.50 to $105 next.
- CCRN — down to ⅓ or less. Exit at $36+ or consider holding for $37.50 to $38. Stop at $32.
- QQQ — Just down to runners. #cheers
- DIA — Just down to runners, if you want. #Cheers
- Gold — A traction-less trade thus far, although we were able to cut ½ the position above B/E and get our exit about 1760.
- Can be down to ⅓ or less or out completely. Shoot for 1775 for the next trim.
- UUP — Trimmed again on continued fade. Down to ⅓ to ½. Trim down to runner or exit the rest if we open below last week’s low.
- For DXY, I would love to exit the rest at the 200-day moving average. (at 200-day now in the pre-market).
Relative strength leaders →
- LNG
- CAH
- TJX
- SBUX
- DE
- CCRN
- AMGN
- GIS
- REGN
- CI
- MCD
- ENPH, FSLR — solar has strength
- VRTX
- UNH
- MRK
- XLE — XOM, CVX, COP, BP, EOG, PXD (Weekly Charts)
- SBUX
Economic Calendar
**Powell Speak on Wednesday afternoon**
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