The environment remains quite difficult.
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Our View
As the holidays approach, we are keeping things light the last few days of the week. The market is having trouble gaining much upside momentum as global central bankers continue on with their tightening fiscal policies and hawkish rhetoric.
Real-time inflation data is improving but not at a fast enough rate for the Fed evidently. That said, the long-term trend may still be bearish, but the S&P 500 is fighting to find its footing.
Volume should evaporate today, as over the last few days, many fund managers likely positioned how they wanted to for the remainder of the year as they step out of their offices for the last time until 2023.
That doesn’t mean bulls have a cake-walk necessarily, just that extreme selling pressure may take a break too.
Our Lean — Danny’s Take
I tried to be a buyer of the early weakness yesterday as we filled the gap left behind on Wednesday. But within the opening minutes, the bears made it clear they weren’t going to let up. Sometimes it just goes that way and you have to adjust or throw in the towel.
Remaining stubborn and holding a position that continues to move against you is a sucker’s game and an expensive mistake. After all, stop-loss orders exist for a reason.
As for the ES, we’ve had an oversold rally after the S&P took a beating after the Fed waved the caution flag last week. The two-day, 115-handle rally ran smack dab into 3920, which has proven to be a key line in the sand.
In other words, the overall trend remains bearish going into the long holiday weekend.
Our Lean — Coal or Candy?: I struggle to think they’ll kill the S&P today, if not just because we’re ahead of the long holiday weekend and many managers have now stepped out for the holidays.
- One small note: The weather is horrendous today. Take that into consideration when or if trading. You could lose power in the blink of an eye. Consider OCO bracket orders or at the very least, an active stop. A broker you can trade through your phone — anything. The last thing anyone needs is a handful of ES contracts moving badly against them and no way to get out ahead of the holidays.
- One other note: Feel free to just enjoy the long weekend and/or only trade with smaller size and on high R/R setups. No one needs a big loss before the holidays.
Watch 3855. Above can get us 3870-75, then possibly 3900. Below 3855 puts 3830, then 3800-05 in play.
MiM and Daily Recap
The ES traded up to 3917.75 on Globex and opened Friday’s regular session at 3872.50, made a high at 3875 and totally got destroyed after the stronger-than-expected GDP print put the S&P in a downward tailspin.
The sell-off was so strong and so consistent that the bounces were small. The ES traded down to a new low of 3788.50 at 1:13 and then made its largest rally of the day up to 3846.75 at 3:31. The ES sold off down to 3831 at 3:46 and traded 3842 as the 3:50 cash imbalance showed $2.2 billion to buy, traded up to 3848.50 and traded 3850 on the 4:00 cash close. The ES settled at 3847.75 on the 5:00 futures close, down 56.5 points or 1.45% on the day.
In the end, the selloff was a complete and total reversal from Wednesday’s rally. In terms of the ES’s overall tone, it acted the worst in several weeks, but still managed to rally ~60 points late in the day. I am sure the thrashing isn’t helping anyone’s P&L at the end of the year. In terms of the ES’s overall volume, it was on the high side for this type of selloff, but lower when you consider the number of points it traded, with 1.75 million contracts traded.
Technical Edge
- NYSE Breadth: 30% Upside Volume
- Advance/Decline: 22% Advance
- VIX: ~$21.75
The tape remains tough. We have seen our open positions go from 5-6+ to just 1-3, and we are getting stopped out more quickly after taking our first trim on the positions.
The trend in the market remains in a “sell the rallies” mindset, but the S&P is dancing around last week’s low.
All of this is to say that the environment is still difficult and one must take that into consideration when trading and computing position sizes!
S&P 500 — ES
Two things.
- Notice how the ES was harshly rejected from the 3920 level and the declining 10-day moving average. That’s not surprising, as it was the high R/R sell setup we were looking for.
- However, look at how the ES sliced through last week’s low at 3855, pushed down below this week’s low, then acted like a basketball underwater, erupting higher into the close.
I’m using 3855 as my line in the sand. Feel free to write these levels down:
Below 3920 and the last week’s low (3855) keeps me bearish. If we break the Globex low of 3830, it opens the door down to 3800, 3788 (yesterday’s low) then 3750-61.
On the upside, over 3855 puts 3870 in play, then 3890-92, then the 50-day and 10-day moving averages are back in play. 3920 remains the gatekeeper to higher prices.
SPY
Line in the sand: $381. Above that and technically, ~$387 is in play. For now though, $387 (+/- $1) remains stiff resistance.
Over $390 and the bulls are back in control.
On the downside, below $381 keeps $378 in play. Below $378 and yesterday’s low of ~$375 is on the table, followed by $372.
Open Positions — Do NOT let the winners turn into losers!!
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
- WMT — ½ size & long from 142.75. Trimmed ¼ at $145.25 and ¼ at 145.75.
- B/E Stop. Look for $146.50 to 147.25 on the next trim.
- SBUX — Long from $96.50, with a ¼ to ⅓ trim at $99 yesterday.
- For the calls, long the Jan. $100 calls from $1.75, with a ¼ to ⅓ trim at $2.65 yesterday (+50%).
- B/E stop for both positions now and ideally looking to trim down to ½ to ⅓ on $99.50 to $100 area (test of the declining 10-ema)
- UUP — Ideally needed a close back over last week’s high of $27.95 and we closed AT $27.95. Long against $27.75 is fine with a ¼ to ⅓ trim at $28.15 to $28.25. Ideally looking for $28.40+
- If anyone bought LNG, can use $147 as their stop-loss.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
- LNG — keep an eye $150
- SBUX — 10-week ema at $96.75
- DE — gap-fill & 10-week would be attractive for potential longs
- HON — weekly
- CAH
- LMT, RTX, NOC
- MET — weekly
- GIS
- CI
- MCD — weekly
- ENPH, FSLR, CEG — solar has strength
- VRTX, UNH, MRK
- XLE — XOM, CVX, COP, BP, EOG, PXD (Weekly Charts)
Economic Calendar
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