Monday’s action was not good for longs.
Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.
Don’t Forget: The Long-term performance of the S&P 500, some longer-term setups, and 5 red flags that showed up before the 2022 bear market.
Our View
When I started on the floor, there were a lot of things to learn: Order flow, program trading and fair value, trailing stops, economic reports, technical levels (which mattered but were much different than they are today) and just the simple act of getting your orders filled!
At the same time, I was getting my off-floor lessons from Marty ‘The PitBull’ Schwartz.
While we both agree that some of the old stuff we used to make money on doesn’t work anymore, a lot of the trading rules we came up with continue to be part of today’s price action. For instance, even though we haven’t had a true bear market since 2008/09, our bear market trading rules still apply.
Yesterday’s rule is something I learned in 2007 when the PitBull told me there was something wrong, that there was “rotten wood floating around in the market leaders, the banks and brokers.” A month later all the subprime news started hitting.
I went out for a few hours yesterday and when I came back the ES was down almost 80 points. I thought it was the bond weakness but the PitBull said “The markets can’t go up when the banks are weak.”
Moral of the story, rules matter.
When I did these two videos, I did them to help preserve some of the unending market knowledge the PitBull has, and hoping to do one in the near future.
Our Lean — Danny’s Take
Will the ES go down again today? Only the trading gods know for sure.
What if the ES is just establishing a new trading range? The old one was 3920 to 4000 what about 3950 to 4050? Speaking of rules, the PitBull’s rule about looking for a low the Thursday or Friday before the Dec Quad Witching comes to mind.
Our Lean: Sell the early rallies and look for a low going into the European close (at 11:30 ET) Keep an eye on the bonds (/ZB or TLT), the dollar (DXY or UUP) and the bank stocks. There is a massive amount of rotations going on, so it’s best to have the YM, RTY, ES, and NQ up to see it.
I don’t like it to be overly complicated, but if you can keep 4 to 6 charts up at once, it will help.
MiM and Daily Recap
We have had 12 straight days of MOC inflows, which came to an end yesterday when there was $1 billion for sale at 3:50 when the ES was trading 3996.50.
To get there, the ES opened Monday’s regular session at 4045.75, traded up to 4055.50, dropped down to the 4022 level at 10:00, and traded up to a lower high at 4045.75 at 11:14. After the rally, the ES sold off down to a new low at 3987.25 at 2:48. The ES traded 4002 on the 4:00 cash close and settled at 4006.25 on the 5:00 futures close, down 69.25 points or -1.70% on the day.
In the end what started out as just a simple pullback turned into a 2% decline. Be it the weak banks or bonds or a combination of both. In terms of the ES’s overall tone, for the most part, it was all sell programs and sell stops. In terms of the ES’s overall trade, volume was LOW at 1.43 million contracts traded.
Technical Edge
- NYSE Breadth: 7.8% Upside Volume (!!)
- Advance/Decline: 15% Advance
- VIX: ~$20.75
What a weird session we came into yesterday. Despite a 92% downside day on the NYSE, the SPX declined just 1.8% on Monday. That’s hardly catastrophic, although some areas of the market were under more pressure than others.
Bonds fell, while the dollar and yields rose. The S&P lost active support in the process and now we move to our next set of downside levels.
We had a few stop runs yesterday on our open positions. It’s why we
- Take profits along the way — aka, pay ourselves for taking the risk
- Pay attention to the “change in tune” from the market when we go from having great setups and trimming into profit zones to having several stop-losses trigger in a row.
Traditionally, when I have several stops triggered on the same day, it’s a day for me to “listen to what the market is saying.” Maybe the S&P will find its footing and we’ll rotate higher. But it’s possible conditions will become choppier ahead of next week’s CPI reading and the Fed.
S&P 500 — ES
3988 is the 61.8% retrace of the current range, which held as support late yesterday.
You may notice how nicely the 3940 to 3950 buoyed the ES from mid-November on. So if the ES breaks 3988 and doesn’t hold the 21-day moving average, then this area could be back in play.
If you are a multi-timeframe trader like me, you’ll also notice that ~3940 is where the 10-week moving average is crossing up through the 21-week SMA and both are advancing rather than declining.
On the upside, I think we need to consider 4050 as potential resistance (again), which is a multi-week resistance mark (excluding a few days last week). It’s also where we find the 200-day.
ES — Zoomed In
Here’s a look at this week’s range thus far. You’ll notice how 4012 to 4015 went from support to resistance yesterday and how it’s been resistance during Globex.
If we rally there today, keep an eye on this level. If it can be reclaimed, follow the retracements higher (and note yesterday’s high: 4055.50). Below 3994 and yesterday’s low is in play.
SPY — Daily
For the SPY, I’m in no rush to force trades. I am looking for either the $393s or $390 on the downside.
On the upside, there are a lot of “moving parts” between $400 and $404. Above the 200-day and perhaps we can see another push to that weekly VWAP measure.
(I also can’t help but notice that open gap down at ~$381, if the selling pressure does pick up over the next days/weeks).
CEG
You all know I like when trend support lines up with a prior breakout area. In bear markets, this is a tougher trade, but it’s the one I like the most. I like a long here around $90 with a smaller position size so I can use $86 as my stop.
$93 to $93.50 would be my first trim spot.
Ulta
Perhaps the best-looking retailer right now. I’m a ½ sized buyer today if we see a test of the 10-day moving average and a retest of prior uptrend resistance (blue line).
AAPL
I’m highlighting AAPL because it has a $2.3 trillion market cap. Yesterday it had a nice rally going, then flunked and gave up its gains.
It’s not a trade — yet — but one to watch. If it can’t hold $145, Apple loses a multi-day low and all of its daily moving averages. That puts last week’s low in play, then the $135s.
If it can keep its footing, look for potential support in the overall market as well.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
Open Positions —
- TLT — Long from ~$97, reloaded at $101.50, trimmed down to ⅓ to ½ position. Looking to trim down to ⅓ to ¼ if we see $108 to $108.50. c
- CCRN — Stopped at $34.
- DIA — Stopped at $340.
- TJX — Long from ~$79. Trim at $81. Stop at $78.50 (No need to let it unravel too far against us). Great reaction from the 10-ema.
- I like to see how the market is handling the opening 30 min to 60 min and TJX traded well off the open. Still holding with the same parameters. Can use a stop of $70.30 hard, if you’d rather.
- IBM — Daily-up over $147.17 was the entry. $145.50 is our stop. Trimming ⅓ at $149.50+ (pre-market is fine). Ideally down to ½ if we see new highs over $150.50.
- Stop at $145.50 or B/E for less aggressive traders
- WMT — Still like this setup, but did have the B/E stop tripped yesterday. Can consider long again if we go daily-up over $153, (today only).
Relative strength leaders →
- LNG
- CAH
- Retail — TJX, WMT, ULTA
- SBUX
- DE
- CCRN
- AMGN
- MET
- GIS
- REGN
- CI
- MCD
- ENPH, FSLR — solar has strength
- VRTX
- UNH
- MRK
- XLE — XOM, CVX, COP, BP, EOG, PXD (Weekly Charts)
Economic Calendar
