I don’t want to kick the bulls while they’re down, but I have to ask one question: Why would anyone think Powell was going to have something good to say?
On top of the 75 bps rate hike (to a 3% to 3.25% range), Powell projected the Fed will raise by another 100 to 125 basis points by year-end. That was all the ES needed to hear and only backed my theory that the decline is not over.
Aside from that, Powell & Co. really have not been that positive or constructive toward equity markets since Jackson Hole — the market just chose to ignore it. Followed by a hotter-than-expected CPI report on Sept. 12, I don’t know why bulls were looking for a pivot.
There’s no need to gloat or cheerlead this decline, so I am going to leave it at that.
Our Lean — Danny’s Take
As always, we cannot rule out a bounce. However, the SPY closed on the dead lows yesterday and without much support in sight, the lean is lower.
ES support comes in at 3745 and below that it could be a free-fall down to the contract lows near 3640. One thing to remember is that most people were bullish yesterday and now coming into today, everyone is bearish.
That can create an initial rally, but it’s hard to imagine it’s not one to sell.
The ES opened at 3893, traded up into the 3905 support/resistance pivot of the last few days, and chopped between 3885 and 3905 until the FOMC announcement at 2 pm. The ES knee-jerked lower, falling 72.25 points to 3832.75 at 2:05. Yes you are reading that right: The ES sold off 72 points in just over 5 minutes.
After the low, the ES rallied back up to 3867.25 at 2:08, dropped back down to a higher low at 3836.25 at 2:15, and rallied all the way up to 3925.25, up over 90 points from the low. The ES then fell 69.5 points down to ~3856, bounced 24 points, then continued to puke lower. From the high to the low, the ES shed 125 into the 4:00 close, where it ended at 3804.
It settled at 3796.75, down about 80 points or 2% on the day.
In the end, it was a big mess. In terms of the ES’s overall tone, there were buy programs and sell programs but the latter won the day. In terms of the ES’s overall trade, volume was low up until 2:00 but increased quickly for a total of 2.36 million contracts traded.
All I have to say is we are in this for the long haul and not to get bullish into dead-cat bounces. This decline is not over…
Daily Range: 133 points
NYSE Breadth: 14% Upside Volume (!)
NASDAQ Breadth: 25% Upside Volume
Game Plan: S&P, Nasdaq
The downside breadth days have been piling up — sound familiar? — with four 80%+ downside breadth days in the last seven sessions (and one of those was a 95% downside day).
On Monday, we looked at the charts and said, “What are bulls clinging to here? Support is broken.”
Despite that, the S&P tried to hold up. I don’t know that the low is in necessarily and our video from last week is proving prudent. That has my “gut” feeling to be selling an initial rally this morning and/or a higher open.
That said, we can have some wild action the day after the Fed, so be prepared for volatility.
(For the traders looking for individual setups, I know there have not been many over the last two weeks. When we’re in a bear market, there are very specific times to trade individual stocks — like we did throughout the summer — and there are times to hunker down and a focus on the indices, like now. I will get out some longer-term setups today, hopefully).
S&P 500 — ES
“Bears need to break 3843 to 3855. Below this zone could open the door to 3790 to 3800.”
We found support in this area after 4:00 pm ET and are holding above it now. Will it hold? That’s a harder question to answer.
Right now, the setup is fairly straight-forward. The ES needs to reclaim 3743 to 3753. That’s the three-day low that broke on Wednesday (as well as last week’s low).
On the downside, 3750-ish is notable support.
ES — Zoomed In
Above is a 30-minute chart of the ES, going back to late last week.
A push above the Globex high at 3833 could put that big prior support zone in play. Unless it is reclaimed and again acts as support, I suspect this zone will be resistance — if the ES has the strength to revisit it to today.
On the downside, keep 3790 to 3800 on your radar. Above is somewhat constructive, while below it leaves the Globex low open for a test down near 3767.
A sustained break of 3767 could get us the 3740 to 3750 zone outlined on the first chart.
“We need some sort of resolution from this three-day range.” Well, we got it!
With a bearish engulfing candle and that $382 area failing as support, the bears are in control — it’s their ballgame to lose.
We did fill the gap at $379 and are into the 78.6% retracement, so it could be an area to bounce. However, I think it’s a big mistake for the market to open higher this morning — with the SPY currently higher by 0.3%.
Gap-up opens in a bearish tape have a tendency to suck in buyers and then take out the prior day’s low. Similar action could put the low-$370s in play today.
For now, I’m looking at $381-$382 as resistance, if we get there.
Nasdaq — NQ
A somewhat wide range, but I’m looking at 11,775 to 11,825 as resistance in the NQ. A push above that where this zone becomes support puts 12K and the declining 10-day in play.
Below this zone now though and we have to be cautious of lower prices.
Watch yesterday’s low near 11,650. Below that keeps the Globex low in play at 11,550. A sustained break of that mark puts the 11,425-ish area in play, +/- 50 points.
Nasdaq — QQQ
$290 couldn’t be reclaimed, while $285-$286 gave out as support. If the latter is reclaimed, the former is back in play.
However, I am moving forward with the assumption that prior support — $285 to $286 — is now resistance until proven otherwise.
On the downside, we have the 78.6% retracement in play at yesterday’s low, while $276 to $280 was a notable support area in June and July. A break of this zone could very well put the 52-week low back in play (along with a test of the 200-week moving average).
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.
UUP — Down to ¼ position as we hold for potentially higher prices. Raise stops to $28.40 to $28.50. Look for $30 on the last piece.
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!