Our View
You really can’t make this stuff up. Yesterday our call was for higher prices because the high CPI report was already baked into the market’s recent decline. It’s the old “buy the rumor, sell the news” trade, but flipped (sell the rumor, but the news). It’s how we approached the Fed last month as investors feared the Fed.
The problem for the bulls? All the buying was used up from 8:30 am ET to 11:45.
The PitBull said he doesn’t like the markets right now and that when the Fed starts shutting down the repo payments, stocks will really start to fall. However, he also went on to say that the price action is nuts lately. He was watching the 4330 level as a possible support level.
Personally, I agree and think we’re heading lower at some point. Ultimately, it’s just a matter of “when,” not “if” in my view.
Our Lean
From Friday’s high to Tuesday’s low, the ES has shed 144 points or 3.2%, while the Nasdaq has fallen 761 points or 5.2%. The big picture still points lower, but after the ES sells off like this in just a few days, traders have to be on the lookout for short-covering rallies.
One pattern that has been fairly consistent is that when the ES and NQ close weak, they tend to rally on Globex (They did, but are now about flat).
If the ES gaps higher tomorrow, I can’t rule out selling the early rallies. However, I think the first part of the day could be up. The 50% retracement from yesterday’s range is 4421ish. That’s followed by 4432, then last week’s low at 4444.50.
One of the best indicators for trading the index markets has been the 30-year bond. Keep a constant eye on it today.
Daily Recap
The ES ripped from 4416 to ~4463, a near-50 point gain shortly after 8:30 after the CPI report. However, 4440.75, 22 handles off the high. Shortly after the open, a dip to 4433.75 gave bulls a buy-the-dip opportunity, as the ES popped to 4466.75, up 33 points. That ended up being the session high though, as the ES pulled back to 4431.75, bounced to lower high at ~4455, then broke down to a lower low at 4421 at 1:00.
From there, a mild bounce sent to 4436 — another lower high — before rolling over again. It fell 60 handles down to 4375 where it found its footing at 3:15. It rallied back up to 4397 at 3:47 and traded 4493 as the 3:50 cash imbalance showed $850 million to sell. The ES traded 4391.25 on the 4:00 cash close and settled at 4394.50 on the 5:00 futures close, down 16 points or -0.36% on the day.
In the end, all I have to say is, “embrace the chop.” In terms of the ES’s overall tone, it got worse and worse as the day dragged on. In terms of the ES’s overall trade, volume was high at 1.7 million contracts traded.
- Total Range: 91.25 points
- H: 4466.75
- L: 4375.50
Technical Edge
- NYSE Breadth: 42.2% Upside Volume
- NASDAQ Breadth: 44.3% Upside Volume
Yesterday’s action felt much worse than the headline numbers indicate. The market rallied on the CPI report, despite it coming in at its highest reading since 1981. However, there is hope that inflation has peaked and that’s why the market rallied.
However, we can’t exclude bonds as a culprit for yesterday’s afternoon dip. Yes, the buyers wore themselves out, but the poor bond auction at 1:00 did not help matters.
Game Plan — A Short-Term Bounce Brewing?
We are working with a holiday-shortened trading week and options expiration week. Historically, both the day before Good Friday and the April Opex day have been bullish. (Nasdaq up in 20 of last 21 Thursdays ahead of Good Friday).
Further, we’ve seen a notable retrace in both the S&P and Nasdaq thus far. Can we get our “Thursday/Friday bottom then rally” trade a day early (due to the holiday)?
While I remain of the belief that this is a “mixed bag” market and that we need to respect a cautionary stance, that doesn’t mean short-term rallies can’t occur.
Overall, I am cautious at best. I do not have 100% conviction that we will rally today. However, I’m looking at the pieces to the puzzle and seeing some things connect (seasonality, short trading week, Opex bounce, etc.)
S&P 500 and QQQ
Above is the SPY. Below is the QQQ.
The SPY has retraced roughly 50% of the rally from the lows, while the QQQ has retraced 61.8% of the rally.
Perhaps we can get an undercut of Tuesday’s low as a possible long opportunity today. If we can eventually get some sort of momentum working in the bulls’ favor, it could put last week’s low in play.
For the SPY that’s $433.50. Above that could put $446 to $448 in play. Who knows, perhaps we can even retrace 50% of the current decline. Wouldn’t that be something?
For the QQQ, I would have my eye on the $348 to $350 area. Above that with some vigor and it could put $355 to $359 in play.
Right now though, $342.75 to $344 is an area to watch.
Individual Stocks — Always a Bull Market Somewhere
WMT
If it holds from here, $156 could be in play on a rebound, followed by the highs near $157.50. Ultimately, bulls are looking for a rotation to the upside, putting $165 to $170 in play.
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).
**We got some really nice setups yesterday in our ABBV, ABC, WM and TU trades. The last, TU held up the worst by the close, though.
Once you have a good bounce working in your favor, remember what we said yesterday about holding on to a “pain trade” — don’t do it! Let’s see if the others can give us some follow-through today.**
- PANW — $625 Trim Spot hit → Look for Weekly-up over $631.25 while riding a B/E stop (near $598).
- 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
- 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.
- WMT — Long from $152.50 area. Look for potentially minor trim at $155 to $156. Otherwise, looking at this as a longer-term hold.
- WM — First trim spot $164 was hit. Now let’s see if it can hold the 10-day.
- ABBV — Needs to hold the 10-day.
- ABC — $164 is ideal first trim spot. Could justify trim at $163 to $162.25. B/E Stop here. Too good of a bounce to take a loss now.
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
- DLTR
- 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
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