Daily Recap
Bonds can’t fall forever and neither can the Nasdaq. Along with big declines, come big short-covering rallies.
Yesterday’s weakness was due to the 10-year note climbing to 1.866%, its highest level in two years, and closing at the highs. As of yesterday’s close, the Dow is down 2.7% year to date, while the S&P and Nasdaq are down 4% and 7.3%, respectively.
According to the Chicago Board of Trade’s Fed Funds, interest-rate futures now indicate four to five rate hikes this year.
I’m not going to spend much time on the Our View section: We all see what’s going on.
Bonds are dropping, crude oil is at a seven-year high, and large institutional stocks are being liquidated. That said, while FEAR has hit the stock market, there are still billions of dollars waiting to buy the dip.
Our Lean
If the ES gaps lower, I am buying the open or the first pullback after the gap down open.
Odds favor a bounce today and if the ES can get above 4586.50, I think there is a very good possibility the ES trades 4620 or higher. The ES, NQ and YM are extremely short-term oversold and there is a high level of buy-stops building up.
Does that mean the low is in? I doubt it, but I think it’s time to shake some shorts out. It’s getting a little too bearish. If the ES gaps higher, my guess is the sellers will show up, but I will still be looking to buy the dips.
If I’m wrong, we will start fresh tomorrow. If I am right the ES could be up 1%. That’s all I have to say about that!
Daily Recap
The bulls started off underwater, with the S&P futures opening at 4604, down 60 handles from Friday’s settlement. The ES inched up 2.5 points, then flushed lower, falling 28 points to the low in the first 30 minutes of trading.
The market crept lower from there with a series of back-and-fill action to the upside, but each rally was sold.
After making a new low at 4571.25 at 1:03, the ES rallied back up 4582.50 at 2:03, pulled back down to the 4573 area — a higher low — then rallied up to 4588.75 at 2:42. It climbed up to 4595.75 at 2:55 on the first decent rally all day, but then dropped down to 4570.25 at 3:17 as the MIM slipped from over $400 million to buy to just $130 million to buy.
The ES sold off down to 4563.25 at 3:43 but climbed to 4571 as the 3:50 cash imbalance showed $1.4 billion to buy. From there we got some fireworks.
The ES fell hard down to 4560 — hitting a new low of day — but came roaring back to the upside after it undercut the previous session low at 4561.25. On the 4:00 cash close, the ES traded 4572.50 and settled at 4577 on the 5:00 futures close, down 77.5 points or 1.67% on the day.
In the End
In the end, it was an incredibly choppy downside trade. In terms of the ES’s overall tone, it was weak from the get-go and closed on the lows like I said it would on Twitter and in the chat room. In terms of the ES’s overall trade, volume was high at 2.016 million contracts traded.
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.
Technical Breakdown
- NYSE Breadth: 83.2% Downside Volume (!)
- NASDAQ Breadth: 71.5% Downside Volume
Not a good day for the bulls. That’s all I can say about that.
We have talked about energy and financial stocks being the recent leaders, but we’re losing the leadership from the latter as investment banks are seeing a sell-the-news reaction to earnings.
We’re also starting to see FAANG lose momentum. That said — and as Danny said — the market can’t just be bearish every single day without some kind of reprieve. Eventually, they’ll rip it higher.
Game Plan
“I want to preach patience — especially on a dicey Tuesday morning — and let the market show its hand before piling in and forcing a bunch of trades early this week.”
That was our Game Plan from yesterday and I think it worked out pretty well yesterday. We came in really watching just two setups: GS and ARKK.
The first didn’t trigger as it was a gap-and-fade, but the latter did and let us risk just 25 cents a share vs. several dollars in reward on the upside.
These types of low-risk, high-reward trades are exactly what we want to find — well, always! — but particularly in these difficult environments where holding overnight can feel too risky.
A mild gap-up after a big down day is not ideal. I would rather have a gap-down today, which stretches the rubber band too far and creates the opportunity for a snap-back rally.
Instead, a gap-up just gives the sellers more ammunition to sell into — which is what we may look to do as well. Still, I want to refrain from getting too bearish after such a notable downside move.
There’s a big difference between selling strength in a downtrend at reasonable Risk/Reward pivot points vs. being blindly and stubbornly short.
S&P
Above is a four-hour chart, showing several moving averages near current support as the SPY contends with last week’s low. While ordinarily a good bounce spot, we’ve been here too many times lately — the 21-week has been tested in 4 of the past 7 weeks.
Trading $458-and-change now in the pre-market, I’m looking for a possible open above the prior 4H high ($458.90) or a move above yesterday’s high (~$460).
If we get that and fade, it could be a decent scalp on the short side. If it sets up, I will use the high-of-day at that point as my stop.
So for example, a gap-up open and a rally up to $459.25, followed by a drop back through the prior 4H high at $458.90 lets me get short SPY with a risk of 35 cents per share.
Remember, we’re looking for those situations with low-risk, high-reward.
Nasdaq
Daily-up puts that support zone back in play, followed by the declining 10-day.
On the downside, a weekly-down rotation that isn’t reclaimed puts the 200-day in play. A test of the 200-day would have the QQQ down about 10% from its high.
Individual Stocks — BAC, ARKK, AAPL
Energy wobbled a bit, while crude oil is hitting a 7-year high and has some bearish divergence on the chart currently. That doesn’t mean it’s about to roll over, but weakness in crude may give us some buy-the-dip opportunities in this space.
Go-To Watchlist
- Energy (PXD, DVN, SLB, COP, CNQ and XOM)
- Financials (KRE, ASB, TD, STL, MET) / Regionals holding up better than investment banks
- F
- ABBV (watching weekly more than daily, daily still needs some time)
- QCOM — nice weekly chart.
- CAT
- DE
- BRK.B
- KO
- PG (great EPS follow through. Let’s see if it sticks)
AAPL
Keep Apple on your radar this week. Specifically, I’m looking for a possible undercut of last week’s low near $168, along with a test of the 50-day.
If we get this combo, it could give us a reasonable R/R to buy the dip.
BAC — Earnings
I was really hoping for a gap-down into last month’s low and the 200-day, but we have a gap-up in BAC. If it clears this week’s high and the 10-day, there’s a gap-fill up near $48.70.
*Anytime you are trading earnings, the moves can be outsized.
FAST — Earnings
We had a doji candle on the 21-week moving average, which would have been a really attractive daily-up candidate today. Instead, shares are gapping higher by 3.5% to roughly $60.50.
That’s the 10-day, which has been active resistance. If FAST can’t reclaim that measure, we could see a fade today.
Above it puts last week’s high and the 50-day in play.
UNH — Earnings
Up modesetly on earnings — about 0.4% — see if this one can hold yesterday’s low. If it can’t, we could retest last week’s low.
If that fails, the 21-week and 161.8% downside extension is in play. This was a go-to long trade a month ago but looks to be in the midst of an ABC correction currently.
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!
Economic Outlook
=
