I figured after the CPI “flash crash,” the futures would rally. They did initially, but I didn’t expect the ES to trade down to 3923.75 and drop 120+ points from the day’s high. The train really has rolled off the tracks.
I know people are starting to dabble into buying some beaten-down stocks, but I don’t think we are there yet. The PitBull told me today that at the top of his sheet — his stock list — he wrote, “Sell a rally, buy July puts.”
Everyone keeps thinking the markets are going to rally — and they will eventually — but each bounce just ends up being another false start/dead-cat bounce.
A close friend of mine is down over $300,000 in his and his friend’s Bitcoin account. Recently, he was up over $600,000. Another friend said he’s “losing 2% a day.”
It doesn’t matter if it’s hot stocks, options, or futures — everyone can buy and no one knows how to sell. When the PitBull talked to me about this Tuesday night, I told him he should include a chapter in his upcoming book about this problem. I think this is where the old ‘buy and hold’ meets the ‘short term’ trader that gets in and out. I happen to be one of those guys. I get out too fast, but I have learned that it’s a lot easier to make back a few small hits than it is to trade your way out of a big loss.
It’s about capital preservation, so you get to come back and fight another day.
How often do you see the stock market crashing, bonds tanking and gold selling off? You don’t. There is no flight to quality when everything is being liquidated. I think this is a watershed event and is accelerating to the downside and the ES is now closing in on my first downside target, 3800.
So far, selling in May and walking away has paid off handsomely. The ES is down 5.5% and the NQ is down 8.1%. Like always, I cannot rule out a bounce. MrTopStep Trading rules say the ES tends to go sideways to higher after a big drop.
That said, the last time I said this the ES rallied over 100 points and then reversed. I know this may be a long shot, but the 50% retracement from this morning’s low to yesterday’s high is at 3967.
The ES traded 4050 at 7:30 and went into the CPI report trading 4031.50 at 8:30. After the report, it promptly fell 84 points in 30 minutes, undercut Tuesday’s low, and bottomed at 3947. From there, it bounced 98 points — these ranges are crazy — and took out the 8:30 high.
It topped at 4045 just after 10:40, then fell 45 points in the next 30 minutes. After the low, the ES rallied 42.50 points to 4042 at 11:30 — a lower high — and then the real selling began.
The ES tanked 106 points down to a low of 3936 just before 2:00, bounced 50 points in 30 minutes, then fell 57 points to a new low going into the 3:50 cash imbalance reading. The MIM showed $550 million to sell as the ES sold off down to 3923.75 and traded 3929 on the 4:00 cash close. It finished lower by 66.5 points or 1.66%.
In the end, the ES is on track for its sixth weekly lower close — its first stretch of this magnitude since 2002. In terms of the ES’s overall tone,i t’s the same old same old — weak. In terms of the ES’s overall trade volume was tracking on the high side at 2.1 million contracts traded.
Total Range: 127 points
Total Range: 112.50 points
NYSE Breadth: 68% Downside Volume
NASDAQ Breadth: 81% Downside Volume
Two things surprised me yesterday: NYSE downside breadth was sub-70% and the VIX actually fell 1.3% in a session where the S&P 500 and Nasdaq fell 1.5% and 3.2%, respectively.
Bulls actually had a pretty good setup for them yesterday, provided they could gain any upside momentum. There was a clear two-day low in many stocks and indices and if the market responded well to the CPI report, there was room to fly.
The market tried early in the day to rally, but it was met with sellers at the pre-CPI high in the NQ and ES markets. Once that was resistance, sellers felt comfortable flushing the market lower.
Game Plan — S&P, Nasdaq, Bitcoin, Individual Stocks
A gap-down today is better than a gap-up. Bonds continue to power higher and just as it did yesterday, that has my attention.
Today is light → I basically just want to see the action. Do we get some sort of capitulation? Do we gap down and reverse higher? There is finally some fear in the market and it will be key to see how it responds.
Circled above is the two-day low that failed on Wednesday. In Globex, the ES is trading into my downside target, the 161.8% extension from “D” leg to “C” leg at ~3900.
We’re seeing “the generals” start to crack — names like AAPL, TSLA, etc. — and it’s probably indicative of margin calls and cash-raising attempts.
If the market can hold this area and bounce, the ES needs to reclaim yesterday’s low at 3924. That opens the door to 3955, then 4000.
On the downside, well. We’re kind of at the downside level in the short term! If we break the Globex low at ~3885 and fail to reclaim it, it could put 3845 to 3850 in play, which is the downside extension from yesterday’s range. 3775 could be a “bigger picture” level to watch.
If we are looking at just the smaller timeframe extension near $390, the SPY is trading that in the pre-market. If we bounce, see how it handles yesterday’s low at ~$392.
Above that could open the door up to $397, then $400.
On the downside, the 161.8% downside extension from the larger range is down near $380 (the same extension as the 3775 level for the ES). It would take about a 4% decline from Wednesday’s low to achieve it.
ZB — Bonds
Bonds are really interesting right here. We haven’t talked about them in a few days, but have repeatedly flagged the 200-month moving average and the 2018 low as two areas to take notice.
The bonds — whether TLT, ZB, etc. — have been really strong lately. They’re rallying again in the pre-market now. This will take pressure off yields, which should take pressure off tech, although that hasn’t been the case, yet.
We’re back above the April low now and if we close here, the ZB is back above the 10-day and 21-day moving averages. That could give us some breathing room, potentially into the 146 to 147 range before we hit some significant areas.
Keep this on your radar. A break below the April low does not bode well for longs.
*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.
AR — Was looking for $35 on First Target. Hit $34.90. Anything above $34 was good for a trim. → Now B/E stop-loss on this one.
Relative strength leaders (List is cleaned up and shorter!) →
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!