Danny’s View
I am not 100% sure, but it looks like the ES is trying to stage a rally. The mutual fund and ETFs have been heavy sellers on the close of the last two sessions of November, but sometimes the money gets put back to work on the first few trading days of the new month — in this case, December.
If that’s the case, the ES has a clear shot at 4630 to 4640. The problem is, what happens to the ES if it gaps 10 or 20 points higher (or more) on the 9:30 ET futures open?
My guess would be the sellers show up. They have all month on the gap ups.
It’s 9:37 pm and the ES just traded 4600, up 42 points off yesterday’s low, which brings me to one of MrTopStep No. 1 trading rules: It takes days and weeks to knock the S&P down and only one to bring it back.
Well, the proof will be in the pudding today!
Our Lean
Our lean: I bought 4 NQ late in the day and made 100 points on 2 lots. I am offering 1 lot at 16,319.50, (up 200 points) and will still have 1 long. You can sell the gap-up open and buy the 20- to 30-point pullbacks or just be patient and buy the dip.
Remember, the S&P never does what most people want it to do when they want it. My guess is people are offside/short and there are buy-stops building up. Will the rally hold? We shall see.
Danny’s View: The Opening Print Recap
I started to do the normal ES recap, but after 5 lines and all the ups and downs, it just got too hard to write about every rip and dip.
Instead, let’s be honest about where the markets are and where they are going.
Currently, the market is stuck in the taper, Covid-19 crunch. With the S&P still up over 26% this year (and up about 30% at the highs), the shift of negative news has made it easy for the sellers to come piling in. The constant sell programs have not let up over the last few weeks.
When I spoke to the PitBull yesterday, I told him everyone was trying to be long for the year-end rally and he said, “it’s way too early for that.”
I agree, but you just don’t know when a bounce turns into a low. That is why I am sticking with my trading plan of buying the Jan ES 4900 and 5000 calls and the Dow 39,000 calls. That way I know exactly what my risk is and I don’t have to worry about something bad happening and the futures selling off hard.
The ES fell ~88 points from Monday’s high to its Globex low on Tuesday morning. By the time the 9:30 ET open came around, the S&P futures were already up 42 handles off the low and opened at 4622.50.
From there, we pushed to a high of 4644.25 and reversed hard. That’s as the Powell comments came into play about a faster-than-expected end to the Fed’s asset purchases. In less than 30 minutes, the ES fell 60 handles.
As I said, I will avoid all the rips and dips of the day, but the ES looked sick as it went out near the low of the day, at 4562.75. At 3:50, the MiM reveal showed close to $9 billion to sell, but that was pared down to $8.5 billion, then $7.9 billion — before shrinking even more as we neared the close.
From the 4 pm-close on Monday to the 4 pm-close on Tuesday, the ES shed ~88 points or 1.9%. However, it’s worth pointing out that, right after the close, the ES rallied 23 handles into the 5 pm futures close.
In The End
In the end, the ES was constantly moving all day and had an 87.25 point trading range during the regular trading hours. The day was filled with big 20 and 30 point moves, a scalper’s dream.
In terms of the ES’s overall tone, it was weak but there was some real buying late in the day. In terms of the ES’s overall trade, volume was HIGH, as 455,000 ES traded on Globex and 2.26 million traded on the day session for a total of 2.72 million futures 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 Breakdown
NYSE Breadth: 89.6% downside volume (!)
NASDAQ Breadth: 69% downside volume
Shenanigans? Yeah, you could say that. Yesterday’s late-day MIM reading flashed $9 billion to sell, erasing any late-day hopes for the bulls.
But that didn’t include the post-close action. Almost immediately after the 4 pm cash close, we saw the S&P futures explode higher, rallying 20 handles in about 10 minutes. By the 5 pm futures close, the ES was up 23 points and going out at its “after-hours high.”
That’s some end-of-the-month trickery right there, as ETFs, mutual funds, and others rebalance. Obviously, that had some impact on the MIM, as well as the bad breadth.
Remember, we had a 90% downside day on Friday (admittedly, a short session). But that’s essentially two 90% downside days in a three-session span and it has me a little cautious even with today’s gap up.
As of 7:20 am ET, the ES is up 60 points or 1.3%. The Russell futures are leading the way, up 2.2%, while the Nasdaq is up 1.5% or 240 points.
So far, much of the directional action has happened overnight. On Friday, we woke up to big losses, then big gains on Monday. Tuesday’s open was notably lower, while today’s is notably higher.
Those who bought into the close yesterday should fare well today — at least at the open. I would be reducing some of my risk on my long trades on a gap-up open and shift to a break-even stop.
S&P 500 and SPY
For the futures (shown above), bulls need to take out 4670. That’s effectively the high for Monday and Tuesday, but it would also put the ES above the 10-day and 21-day moving averages.
I don’t necessarily expect that all today, (as it’s up another 41 points from current levels), but by the end of the week, it would be a welcomed development for the bulls.
On the SPY (shown below), this week’s high is $466.56. Above that puts more upside in play. If we remain below Tuesday’s high of $464.03 — and thus the 10-day moving average — it can remain a two-way trade for now.
Does it bother me that the SPY came thiiiiis close to tagging the breakout area and the 50-day moving average and is now gapping higher?
Not anymore — but it would have in the past.
I do think it would have been healthier to gap down into this level, find support and reverse higher back through Tuesday’s low though.
Until the SPY takes out Tuesday’s high and the 10-day moving average, Tuesday’s low technically remains vulnerable.
Nasdaq and QQQ
There’s not a lot to say about the Nasdaq.
On the futures, it needs to clear 16,436 and with this morning’s action, it’s not far from doing so.
Just as buy-stops are likely building between 16,435 and 16,450, sell stops are likely building between 16,000 and 16,050. A break of this range could put 15,750 and the 50-day moving average in play.
As for the QQQ, bulls need to take out $401. A close over this level puts it above this week’s high and all of its moving averages. It also puts Monday’s high in play near $409.
If Apple has anything to say about that, the QQQ may be in good hands.
Individual Stocks
Yesterday we were looking at long setups in Home Depot (HD), Dollar Tree (DLTR) and Macy’s (M). The other names didn’t trigger, but these did.
Apple (AAPL) was a trade we had from Monday, looking for a daily-up rotation over $160.50. I will definitely be trimming into today’s opening push, with AAPL up 3.1% yesterday and up another 1.9% in pre-market trading.
It’s up to you whether you want to trim any of the others. Macy’s is a longer-term swing, but the others are short-term setups. If these names gap higher on the day, I will not let them go negative on me (flip from green to red). Not in a tape like this.
You can always stop out and get long again if the setups reoccur.
The bulls will be feeling good at the open, but we have to remember it’s a game of offense and defense and at least for me, defense means not letting a winner turn into a loser.
Costco (COST)
If we break below Tuesday’s low, look for it to reclaim this measure and give us a possible bullish reversal entry.
Otherwise, a bounce from here could put $550+ in play.
Johnson & Johnson (JNJ)
J&J is a name I will definitely have on watch today.
On Tuesday it set its November low at $155.85 and it went out near the lows at $155.93.
It’s trading down into the 21-month moving average and the prior breakout area near $154.50 to $155. The divergence is also a plus (blue arrow, bottom of the chart).
Gapping slightly higher on Wednesday makes it a bit trickier, but some type of reversal could be brewing here. I would love a gap below the November low and a reclaim, but the “gap below” part of the equation seems to be off the table for now.
A gap-and-fade could be possible, though. Just keep an eye on this one.
Tesla (TSLA)
Obviously not for everyone, but Tesla is trying for a daily-doji-up over $1,168. That could put wedge resistance in play near $1,175 to $1,180. However, the big level to watch will be the weekly-up spot at $1,202.
That could put the $1,240 area in play.
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
Note: Powell due up at 10 am ET.
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