Our View – How Much is Too Much?
When you go down the intercoastal in Fort Lauderdale and look at the harbors in West Palm Beach, your eyes would fall out of your head.
When my friend bought a 63-foot Pershing yacht in late 2019 it seemed like a large boat, but recently when I did a sea trial for a boat I was considering buying (just a 35-foot boat, not a yacht), I was absolutely taken aback by the size and quantity of the superyachts. At the time when I snapped the pictures, I didn’t plan on referencing them in the Opening Print, but I saw a story titled: World’s Super Rich Drive 77% Surge in Superyacht Sales Last Year.
This line in the story said it all:
Low interest rates and bumper markets fueled $1 trillion in gains last year for the world’s 500 richest people, according to the Bloomberg index.
I have lived in Delray Beach, FL for over seven years and have been in all the big harbors, from Miami to north of West Palm and there is no doubt about it: It’s become the day of the superyachts. Some of these yachts are so big that they can’t fit in the harbor and get tied off of the outside of the dock on the intercostal and are 4 to 6 stories tall.
Superyachts aside, even if you just want to get a dock slip…forget about it. Many harbors are trying to find ways to take out the smaller docks and make larger ones to fit the yachts because it’s a lot less work and the yacht owner pays a lot more a month than the 15 slips. Additionally, when the yachts go back for the summer, the yacht owner pays for the slip for a full year even though the boat won’t be there.
I’m not exactly sure how this story fits into Our View, but it goes to show that the super-rich are never going to be affected by a 20% correction in the stock market. Even more, it shows what low rates and a surge in asset prices have fueled in the upper echelons of wealth.
Fast forward to this video. These yachts are piled up on each other. The moral of the story: The rich get richer and the yachts get bigger!
Our Lean
Yesterday, our lean was incredibly simple. It read:
“Sell the early rallies and look for a 30- to 40-handle pullback, which should help set up a late-day rally.”
The ES gapped higher — aka “sell the early rallies” — then pulled back 40.25 points, bounced, and then closed each 15-minute window higher from 2:30 through 4:30, rallying 80 handles off the low.
In the last four sessions, the total 3:50 cash imbalance buys have totaled $12.4 billion. Clearly, big institutional buying has helped stabilize one of the worst monthly declines for the stock market since the credit crisis.
Our lean is to sell the higher open or the first rally above the gap up and look for a pullback to buy. However, my gut tells me we are close to the high of this push.
Daily Recap
The ES traded down to 4487.75 on Globex and opened Tuesday’s regular session at 4511.25, climbed a few points, and traded down to 4499 on its way down to 4474 at 10:06.
In other words, they sold the gap-up open. After the low, the ES rallied up to 4505, dropped down to a higher low at 4483.50 at 10:49, and then climbed to 4513. From there, the ES spent the middle of the day chopping between 4495 to 4500 on the downside and 4515 on the upside.
In the afternoon, buyers started to show up.
A big buy program pushed the ES up to 4533.50 at 3:26 as the MIM flipped from a small sale to a small buy. And that’s when some Fed headlines hit and the futures fell 10 points down to 4523.50 at 3:41 and then bounced back up to 4539 at 3:49. The MIM showed $2.4 billion to buy on the 3:50 cash imbalance, hit a high of 4541 at 3:55, and traded 4538 on the 4:00 cash close.
After 4:00, the ES rallied 17 handles before settling at 4549.50 on the 5:00 cash close, up ~58 points or 1.30% on the day.
In the End
The ES pulled back early, but the guys with the better seats showed up and pushed the markets back up. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was steady at 1.53 million, but below the 20-day average, which sits at about 2 million.
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: 79.2% Upside Volume
- NASDAQ Breadth: 77.7% Upside Volume
We are seeing a powerful reaction to Google and AMD’s earnings, which should help drive FAANG, tech, and semiconductor stocks higher at the open. If they maintain that momentum through the afternoon, that will be damn impressive.
There’s nothing wrong with trimming a bit on the trades and looking for some digestion. On this morning’s premarket high, the Nasdaq futures are up more than 1,400 points from Friday’s low, good for a 10.4% rally.
Even with some powerful breadth, that may still warrant a rest.
Game Plan
“That said, it may simply pay to be bullish until the rally runs out of steam.”
That was from yesterday and I think we have laid out a pretty good roadmap on the S&P lately.
Now into our second tier of upside targets, I am getting a little more defensive, although the bulls have done an incredible job the last three days — or last 2.5 days, if you want to get technical.
S&P 500
Is this chart burned into your memory yet? It should be. We have looked at — essentially — the same one for a week now, since the Fed day on Wednesday.
Yesterday morning we dipped off the gap-up open after tagging the Dec. lows and 50% retracement. We said that’s how SPY gets to $450, then:
If it can reclaim this area, the plan is the same as yesterday: It opens the door to the $457-ish area. There the SPY finds the daily VWAP and declining 21-day moving average, as well as the 61.8% retracement.
So now what?
I think it would be incredibly healthy to digest a bit, perhaps pulling back to the 10-day and/or 200-day moving averages. But that doesn’t mean it will happen. I’m trimming into this morning’s rally and will re-evaluate.
Nasdaq — QQQ
Somewhat similar to SPY, the QQQ can be considered a trim as it’s set to open near the declining 21-day moving average and the 50% retracement of the current range.
Maybe NVDA joins the AMD really in earnest and FAAN joins G on the upside and the QQQs power even higher.
But there’s nothing wrong with taking some profit off the table and raising stops when the move has gone your way.
Individual Stocks & Go-To Watchlist — NVDA, ABBV, PYPL
Some really nice trades came out of yesterday. BRK.B went 2x daily-up, even if it was only good for a few bucks. TD went weekly up and is moving higher this morning. Today, hopefully we can pull out a few more winners.
NVDA
On Monday, I wrote:
“Weekly-up over ~$240.60 and over the 10-day could net us ~$20 a share in a hurry, up to $260.”
Up 5% or so in the pre-market now has us trading $260. Because of that, a trim is warranted (especially into strength), but AMD is up 12% in the pre-market. If it doesn’t fade, we could see more upside in NVDA.
If that’s the case, the $271 to $277 zone could be next. That was a notable support level that failed ($271), followed by the 50% retracement.
ABBV
Gapping up slightly in the pre-market on earnings, watch the $138.15-ish area. This was pretty steady resistance and failure to hold above it could create some profit-taking pressure.
PYPL
Watch last month’s low near $152. PYPL is badly undercutting this level now, trading $143s in the pre-market. I don’t love a $9 risk on a potential reversal, but the selling feels a bit overdone here.
Let’s see how it opens. If it’s $147.50-ish or higher and goes up through $152, a reversal trade may be in play. Otherwise, look for some type of bottom on the smaller timeframe (i.e. 15-minute chart, etc.)
If it doesn’t come to fruition, that’s fine. We’ll pass.
Go-To List — Still Keeping It Short
- AAPL — back on the go-to list
UPS — Not doing a chart yet. But watching daily and/or H4 moving averages and a potential retest of the B/O area near $220 for a buying opportunity. Great EPS reaction - NVDA — (chart above)
- ABBV — (chart above) Let’s see how it handles EPS reaction today.
- CVS hit new highs on Friday.
- BRK.B — can it build off 2x daily-up?
- TD — decent relative strength. Weekly-up at $80.45 — nice so far
- V & MA — back on the go-to list
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
Economic Outlook
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