Our View
This week is going to be a big test for the S&P. The big banks report earnings this week and there’s a full economic calendar, including the monthly CPI and PPI reports, Fed member Willams speaking, an OPEC meeting, 10-Yr note auction, mortgage applications, retail sales, initial jobless claims, and import-export prices.
There are a few more, but I think you get the point. There may be some more room on the upside, but I think we could be running into resistance soon.
The ES made a high on Memorial Day at 4202.50 during the abbreviated holiday Globex session and while it held up for a few days, this ultimately marked the high on the index’s dead-cat bounce. The ES eventually sold off over 550 points down to the new low at 3639.
The 50% retracement is ~3920, which happened to be Friday’s high. For the last 3 weeks we rallied off the low and squeezed out a lot of shorts, but I’m just not sure how much farther the ES can go. Despite Friday’s higher close, the futures barely closed above 3900.
Our Lean
I’m not sure if Friday set the highs, but it’s possible. Maybe we will see a bounce today and tomorrow, but the inflation numbers could be another wake-up call for the bulls. My lean is to sell the early rallies with tight stops. No one knows for sure what the ES is going to do next, but I don’t think all the news will be good this week.
Watch 3860 on the downside. On the upside, 3900 and 3920 are the key levels I have on my charts.
Daily Recap
The ES rallied up to 3909 and sold off down to 3858 at 8:45 ET on Globex and traded 3889, down 14.5 points. After the open, the ES rallied up to 3901 and then went straight down 30 points lower to 3871.50 at 10:00. For the next 90 minutes, the ES ran buy stops and buy programs all the way up to 3922 at 11:30 — the session high.
After the high, the ES sold off for the next 90 minutes down to 3881.50 at 1:00. The ES rallied back up to 3918.23 at 3:00 and then sold off down to 3899.25 on the 4:00 cash close. After 4:00 there was one 5-minute period that the ES rallied from 3899.25 to 3905.50 and settled at 3901.25, down 3.75 points or 0.1% on the day.
In the end, there is absolutely no doubt Friday’s trade was “thin to win” as low volumes helped drive it higher. In terms of the ES’s overall tone it was firm, but ‘whippy.” In terms of the ES’s overall trade, volume was low at 1.43 million contracts traded.
- Daily Range: 54 points
- H: 3922
- L: 3868
Technical Edge
- NYSE Breadth: 43% Upside Volume
- NASDAQ Breadth: 49% Upside Volume
- VIX: ~$26.25
Game Plan: S&P 500, Nasdaq, Oil, XLE
Last week was a great start to Q3 and we were able to cash in on some nice setups. Now the market faces a real test with the CPI report on Wednesday and earnings later this week.
After a great start to the first half of July, we’re in no rush to start the week. Let the S&P tell us where the path of least resistance is.
S&P 500 — ES
On Friday, our upside levels included: “3920, last week’s high at 3950, the 50-day moving average near 3970 to 3975 and finally, the 61.8% at 3987.”
We only got the first target, at 3920. Now tiptoeing around Friday’s range, how this goes from here will be key.
If the ES can hold the 3860s as support (the 10-day, Globex low, and Friday’s low), then bulls may make another push back to 3900.
Above 3900 puts 3920 in play, followed by 3950.
Below 3850 and the 3810 to 3820 zone is in play.
S&P 500 — SPY
Just like the ES, we’re in no rush with the SPY. Either the $385 area will hold as support and put $390, then $393 in play, or it will fail and put the $380.50 area back in play.
If $380.50 fails as support, $374 to $375 is back in focus.
Nasdaq — NQ
The NQ has very clear resistance near the 12,250 zone. Clear all of these marks and the next 250 to 300 points could very easily be on the upside.
On the downside, I want to see 11,950 hold as support. That’s Friday’s low but it’s also just above the 10-day. Lose these marks and we’ll have to start questioning which group has momentum: the bulls or the bears.
Nasdaq — QQQ
Bulls have to clear $296.50.
Bears have to break $289, then $285.
Oil — CL
Oil now finds itself in a downtrend. After initially reclaiming uptrend support, it was rejected by its key moving averages and broke down into the mid-$90s.
Now active resistance is coming into play via the 10-day as /CL leans on Friday’s low.
A break of $100 likely puts $95 to $96.50 back in play, followed by $93 and the 200-day.
On the upside, oil needs to clear the $105 to $105.50 region to see ~$110.
XLE
Like /CL, the XLE is running into active resistance as well. Below Friday’s low of $69.96, and we have a daily-down rotation, which could put the 200-day moving average in play and last week’s low near $66.50.
A break of Friday’s low is actually a somewhat tempting short setup, although the R/R is only about 1:1 at our first target and not even 2:1 at last week’s low, so from that perspective, it’s less tempting. Either way, energy is something to keep an eye on.
Over Friday’s high would put the $75 to $77 area in play.
Go-To Watchlist — Individual Stocks
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the ones I’m watching most closely.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
Trade Sheets:
- MCK — We have hit two trim zones so far on MCK. Feel free to cash the last ⅓ of the position as you see fit. $335 to $340 is a potential upside target if it continues higher. Moving stop-loss up to $315
- DG — We got our second price target at $256 → That leaves us with one tranche left and looking for $260 to $262 with it. Break-even stop.
- MRK — Hit Targets 1 & 2 → Now out of ½
- $90 to $91 Stop Loss (or B/E).
- Looking for $95+ for ¼, then not sure. Maybe hold the last ¼ for a push to $100 if we don’t get stopped out.
- GOOGL — Booyah! GOOGL gave us our target at $2,375 and is now into a resistance area. I am out ⅔ here and may fish for a push to the $2,450 to $2,500.
- B/E Stop
- AAPL — AAPL finished strong last week, but for me, it was designated as a “Lotto” and therefore, I used weekly calls and am fully out of the position. Anyone still long the last 20% to 25% of their position can hold it for:
- A potential push to $150 against a B/E stop.
- Below $145 could open the door back down to the $143 to $143.50 area.
- A potential push to $150 against a B/E stop.
Relative strength leaders (List is cleaned up and shorter!) →
- DLTR
- MRK
- PEP
- ABBV
- UNH
- JNJ
- XLE
- CLR
- VRTX
- DG
- IBM
- MCK
Economic Calendar
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