Our View – Turnaround Tuesday
Today, we’re keeping it simple.
The highly anticipated Consumer Price Index (CPI) will be released this morning at 8:30 ET and is expected to show an 8.4% annual increase in prices, the highest level since December 1981.
With the ES down 4.8% over the last 9 days, it’s my guess that the CPI number is already priced in.
Our Lean
Yesterday my lean was to buy the early weakness and keep an eye on the bonds. Well, the early bounce was only mild as bonds continued to bleed lower. My bad.
Permitting the action in the bonds — again — I’m looking for a bounce today.
Our Lean is to sell the early rallies and buy the pullbacks or just be patient and buy the pullbacks. The bonds traded down to a new low last night at 141.06 and are trading 141.26 — (the ZB contract). Bonds have been a dead-weight on the Nasdaq.
Daily Recap
The ES traded down to 4446 on Globex and opened Monday’s regular session at 4450. Keep in mind, last week’s low was 4444.50.
After the open, the ES rallied up to 4459.50, but then sold off ~35 points down to 4425. While breadth wasn’t bad, the bulls couldn’t muster up much strength and after the dip, it mostly chopped between the low 4420s on the downside and 4435 on the upside. At 3:20 it broke to new lows, trading down to 4409 late in the day.
The ES traded 4410 as the 3:50 cash imbalance showed $700 million to sell, sold off down to 4403.50 — the session low — and traded 4410.50 on the 4:00 cash close. It settled at 4410 on the 5:00 futures close, down 74.50 points or 1.66% on the day.
In the end, everything was the same old, same old: Bonds took the tech-heavy Nasdaq for a ride lower. In terms of the ES’s overall tone, it was weak but accelerated lower after 3:00 as the cash selling started to hit. In terms of the ES’s overall trade, volume was steady at 1.383 million contracts traded.
- Total Range: 87.85 points
- H: 4491.25
- L: 4403.50
Technical Edge
- NYSE Breadth: 39.5% Upside Volume
- NASDAQ Breadth: 44% Upside Volume
Before Monday’s open, we shared a video about the “mixed bag” market right now.
After Monday’s slow bleed lower, it highlights why we had to take this approach. Like I said in the video, I’m a bull at heart and will be awaiting the return to an uptrend. However, I’m not seeing it quite yet
Until then, we need to look for where the bull markets are.
S&P 500 — ES
When the ES lost last week’s low, it had our attention on 4400. With a low of ~4403 on Monday, the ES found support near a key zone.
From here, we need to see if it can reclaim the 50-day near 4420. If it can, then last week’s low at 4444.50 is in play. Near that level, we also have the 4447 to 4457 area in play, which is the 50% and 61.8% retracement of Monday’s range.
- The bulls do not regain significant control without reclaiming its 200-day moving average (which would put it above the rest of its daily moving averages). Until that happens, it remains a two-way market.
On the downside, watch the Globex low at 4382. Below that puts 4366 in play, then 4304.
Individual Stocks — Always a Bull Market Somewhere
As we get into Q2, we’re finally seeing some solid individual stock setups. While every setup may not turn into a trade, here’s what I’m watching.
WMT
Last week we were watching retail stocks, which got us into two (TGT and HD). But now we watch WMT as well. If we get a dip down to the $152-ish area, I want to be on alert.
There we have short-term moving average support (the 10-day) and the prior breakout level. This has been a relative strength leader.
COST
Dip into the 10-day. An undercut and reclaim of Monday’s low could put us in a good lotto position for the rest of the short week.
COST has been a relative strength leader, so I’m looking for a bounce. If more selling takes place, the $571.50 breakout level and the 21-day may be on tap. If that’s the case, I won’t stay married to a pain trade (by buying too early at the 10-day).
If we bounce from here, ~$600 is the first price target, then $610 to $612.
ABBV, WM, ABC, TU
All with a similar look to Costco. They have been relative strength leaders and are pulling back into short-term support. That said, I would have loved for them to spend more time away from the 10-day before today’s dip.
If support comes into play from the 10-day — great! — but if not, don’t be afraid to cut them loose and like Costco, wait for better setups. That could come on a tag of the 21-day/10-week moving averages and last week’s low.
It really will depend on if the market finds a bid.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
- PANW — Entry triggered off 21-day test. The trade was +$20 yesterday. $620 is a reasonable first trim spot. More aggressive bulls can look for $625 to $628 as their first trim. Both can operate against a B/E stop.
- MKC — $103 to $104 Trim Spot hit → Stop now at break-even or ~$99. Look for another small trim at $105+ | If we see $107 I want to be down to just ⅓ position
- DLTR — Boom, $165 target achieved. All out for now. Well done!!
- TGT — Monthly-up trigger from Friday hit, as well as our first price target of $236 — Now let’s see if it can settle in. As long as it holds $229.25, let’s see if we can clear $236. Above puts $250 in play.
- HD — Nice pop so far, but a bumpy start to the week on tap. Conservative bulls can use a B/E stop now. I am still looking for $320 to $325 on the upside.
Look at how strong these stocks have been!! In a market rife with volatility, head-fakes and downtrends, these names are trending higher. That’s why I always say “feel free to build your own trades off these relative strength leaders!” They are dominant.
- COST
- MCK
- BRK.B
- XLB — ADM, MOS, NTR, CTVA, NEM
- ABBV
- TU
- VRTX
- BMY
- Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
- PANW
- AR
- AMGN
- ABC
- UNH
- VRTX
Economic Calendar
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