Our View
Today is CPI day. My guess is the number will be bad, but I think it’s already priced in. That doesn’t mean a horrible number won’t get sold, I just think it’s going to rally after the knee-jerk.
We pointed out last week how the MIM had flipped from big MOC sells to being over $15 billion bought on the close over a period of several days. I think that buying is what supported the markets over the last two weeks and allowed the bulls to get their footing.
I understand people would like me to be more specific about levels, so here are a few. We crept back up to the February 2nd high of 4585 and above there is 4590, 4603, 4614, 4641 to 4667. Also, look at the ES chart in the technical section. That has been spot-on lately.
In addition to today’s CPI number, it’s also the day we look for the Thursday/Friday low the week before February options expiration.
Our Lean
The ES was 15 points off 4600 late in the day. I find it hard to believe they won’t run the buy stops up to 4620 or higher, but I still don’t think the coast is clear yet. The big question is, has the lower volumes caused a trend change or is this just another dead-cat bounce to get short?
Honestly, I don’t know!
What I do know is if you look at the ES chart, the last two days have been all about making a new high, then drifting down before a buy program hits going into the hour. If that happens again today, you are supposed to buy any 10- to 15-point pullbacks.
Our lean is to buy the early pullback and sell the rallies — especially if the ES is above 4510 to 4630. If the ES is in fact weak, 4540-4550 should be support. If not, 4520 will be key.
Daily Recap
The ES traded ~4518 low on Globex and opened Wednesday’s regular session at 4557, up about 40 points. After the open, the ES rallied up to 4568.75 at 9:45, sold off down to 4557.25 — basically the open — and traded back up to the high at 4568.75 at 10:03.
Despite strong breadth, it was a slow grind higher day with lots of buyable dips. The ES hit ~4575 just after 11:00, pulled back to 4558 just after noon, rallied to ~4581 around 2:30, and dipped back to 4562 at 3:15.
That set up the rally to new session highs at 4582.50, as the 3:50 cash imbalance showed $2.4 billion to buy, and slipped down to 4577 on the 4:00 cash close. After 4:00, the ES 4585 at 4:27 and went on to settle at 4581.25 on the 5:00 futures close, up 63 points or 1.4% on the day.
In the end, ES and NQ charged higher. The PitBull asked me what I thought, and I said I thought the lower volume was helping cause a short squeeze. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was low at 1.3 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 Edge
- NYSE Breadth: 81% Upside Volume (!)
- NASDAQ Breadth: 86.5% Upside Volume (!)
Yesterday’s breadth was incredibly interesting. Usually, when breadth is strong out of the gate (like Wednesday), it’s a trend day. Yesterday was filled with many intraday dips and shakes though, giving bulls ample time to get long.
I was frustrated yesterday though because even though I was a dip-buyer several times (mainly in the NQ), the typical upside trend did not follow through immediately and after a nice pop where I took off ½ the trade, I was stopped out near my entry just before the “big move.”
It happens, though.
I just want to put that perspective in place. Sometimes you are doing things right and…it just doesn’t work out.
However, keep breadth in mind. When the NQ was tantruming late in the day and dipping, the Nasdaq breadth didn’t budge. This was a clue that the buyers were still in control.
Game Plan
The positives keep building for the bulls. The game plan is pretty simple today: Take trades if they’re there, but let’s see how we react to the CPI report. If we can’t get over yesterday’s high, we could be looking at a possible dip in the S&P.
Can the CPI report show that the worst is behind us (or at least, almost behind us?)
Not only good for the economy and our wallets, but it may ease the Fed a bit on its rate-hiking agenda. Otherwise, it may keep the pressure on bonds and thus, likely stocks as well.
S&P 500 — ES Futures
- Feel free to extrapolate this layout to the SPY.
Yesterday we wrote:
“Let’s see if the ES can rally to the 4580 to 4586 area. That’s the 61.8% retracement of the current range, last week’s high and the daily VWAP. Above that could give us a test of the 50-day moving average near 4600.”
The ES climbed to 4585 yesterday and paused — this is an important level to pause at.
The question now becomes, will we stall or will we rally?
I included the above passage because the plan remains the same and I am keenly focused on how we react here. If we can go weekly-up over 4586 and hold above this level, it could open the door to the 50-day moving average near 4600. A more powerful move could put the 4675 to 4680 area on deck.
That’s the 78.6% retracement of the range and the 161.8% extension of this recent rally if it’s operating in an “ABC” fashion.
On the downside, bulls need 4500 to 4510 to be support, along with the 10-day moving average.
For the SPY, that’s $460 and ~$467 on the upside, and $450 to $451 on the downside.
Nasdaq — NQ Futures
- Feel free to extrapolate this layout to the QQQ, roughly speaking.
Same as yesterday: Above [15K and the 200-day] opens the door to the 15,240 to 15,260 area, which is the 50% retracement of the range and last week’s high.
Above that could put the daily VWAP measure in play just below 15,400, followed by the 50-day moving average and the 15,500 region, which was prior support.
Individual Stocks & Go-To Watchlist — ARKK, XOM, UPS, DIS, TWTR
XOM
Most energy stocks rallied yesterday, but XOM was a notable laggard. I am long calls in XOM based on yesterday’s close down near the 10-day. Either it bounces back over $80 or it doesn’t — don’t complicate it too much.
On a dip, we’ll see how the last zone — $74 to $76 — holds up, along with the 21-day.
ARKK
ARKK is building off a higher low and sniffing a weekly-up rotation near $77.60. Above that quickly puts the daily VWAP in play. Above $80 and the 50-day is in play.
On the downside, a break of the 10-day and 21-day moving averages likely puts $70-ish on the table (with this week’s low at $70.46).
You don’t have to trade ARKK, but feel free to use it as a proxy for growth.
DIS
Love Disney, but gapping up into the January high and resistance area near $160, just be aware of possible resistance. Above could open the door to the $163 to $166 area.
Same thing for Twitter. Gapping up above $40 now, it’s almost into the 50-day and $41 level (which was prior support, then resistance). There’s also the daily VWAP in there too.
Clearing this area could really open up the charts on the upside. But just know it’s gapping up into current resistance. While it could become prior resistance, it could also remain as current.
UPS
Keenly watching the $220 breakout area and the rising 10-day moving average. After an earnings pop, this could be a great support area if UPS sees a dip.
Go-To Watch List
Feel free to build your own trades off these relative strength leaders
So much of this list continues to trade really well. Quite pleased with the developments here and please feel free to take 5 minutes and flip through the charts of these names. They are our current leaders!!
- UPS
- BAC, WFC and other banks are trading well. These 2 are trying for monthly-up rotations. | ASB, MET, MS
- VRTX —
- Energy — HAL, OXY, XOM, CVX
- AAPL — Great place to book some profit yesterday. Let’s see if we get the bigger rotation on the weekly timeframe.
- ABBV — Continues to do well. 261.8% extension is $147-ish
- CVS — can it find its footing after earnings dip?
- DE
- BRK.B
- TD — continues to perform incredibly well.
- V & MA — Resetting nicely. See if a bid comes in soon
- BROS
Economic Outlook
The Big CPI report is due up Thursday, FWIW.
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
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