Our View
Even after Thursday and Friday’s rally, the S&P has dropped six consecutive weeks in a row, the longest weekly losing streak since 2011. It was just the eighth such stretch in the last 30 years and now the third time in the last 19 years.
In those prior seven occurrences, it marked the low just once. However, the S&P 500 was also higher in six of the prior seven encounters for the next week (this week). In other words? A bounce is likely, but a bottom is not.
My feeling is that the ES goes higher and it may get a lift from this week’s May options expiration.
After all the margin calls and rolling option positions, the low in the ES is holding and I think they may be pinning the 4100 strike. If the ES can close above 4040 today I think there is a good chance we pop.
While we have seen some short-covering, I would not term it as a “short squeeze” yet. However, that may be coming. This is not a bullish endorsement; it’s how the markets function. Sell off, get a dead-cat bounce, and sell off again — it’s like BTD in an uptrend, only the other way around.
As I have said, I don’t know if the rally is going to last 5 hours or 5 days, but at some point, it’s going to get sold again.
Our Lean
If the NQ didn’t act so poorly, I think the ES would have closed a lot higher on Monday. The Nasdaq is the center of the stock market universe and as long as rates are going up, every rally will be suspect.
If you like playing both sides, you can sell the rallies and buy the pullbacks but if you’re on board for higher prices, buy any 30 to 40-point pullback.
Daily Recap
The ES opened Monday’s regular session at 4003.25, rallied 13 points up to 4012.25 at 9:31, and pulled back 21 points down to the 3995 level. This was the opening 15 minutes and it was indicative of what was to come in the session.
The ES bottomed around 3979.50, 37 points, and just below the Globex low and Friday afternoon’s low before the strong bounce into the close. It rallied 42.50 points to 4022 just after 10:15 — a lower high — dipped 38.5 points to 3983.50 at 11:00, a higher low.
That was followed by a 41-point rally to 4024.50 just after noon, then a 27-point dip an hour later. Bulls took control and drove the ES to new highs at 4043.50 at 2:30, which took out the Globex high by two points. From there we fell 44 points and entered the 3:50 imbalance reading at 4003.
The MIM showed $996 million to buy and the ES traded up to 4013.50 at 3:53, sold off down to 3997 at 3:57, and traded 4006.50 at the 4:00 cash close. It settled at 4000.25 at the 5:00 futures close, down 15 points or 0.37% on the day.
In the end, the NQ controlled the price action of the ES all day — and it was an anchor. In terms of the ES’s overall tone, price action was firm but the late sell programs/selloff was suspect. In terms of the ES’s overall trade, volume was lower at 1.64 million contracts traded.
- Daily Range: 64 points
- H: 4043.50
- L: 3979.50
Technical Edge
- NYSE Breadth: 51% Upside Volume
- NASDAQ Breadth: 42.7% Upside Volume
- VIX: ~$29.50
We had some great setups yesterday in XOM and some nice upside pushes in AR and ABBV from the active watchlist below. That said, I personally had a frustrating day in the market.
We have to keep it real here.
None of us are perfect traders and I was far from one yesterday. Chasing on trades as entries either barely missed being triggered, or they did trigger and chopped me out, so I tried to plow ahead and “get back to even.”
These are characteristics of poor trading and they are a double-edged sword of negativity. That’s because this type of trading usually doesn’t work out and even when it does, it just reinforces a bad habit, to begin with.
Today is a new day with another chance, though. Looking back through yesterday’s trades and the action shows just how back-and-forth it was — a digestion day after a big up-move on Friday.
Game Plan — S&P (ES and SPY), Nasdaq (NQ and QQQ), Individual Stocks
Today’s we’re getting a big gap-up to hopefully trim some longs into. I have some SPY from last week that I want to unload a bit into this morning’s pop. I would also like to trim more AR and ABBV.
S&P 500
With this morning’s rally, the ES is into the 50% retracement, which is what we have been looking for now for a few days. That has been achieved!
After tagging 4080-ish and retreating a bit, keep an eye on 4050 to 4056 on the downside. Losing this area could open us up for a larger rug pull. Holding it is bullish.
Above the Globex high at ~4084 and 4100+ is in play. Specifically, 4130 is on the table, then the declining 21-day.
SPY
If the market can hold its 8:15 gains, we will gap into the 50% retracement area on SPY, despite that doji close on Monday that looked a bit suspect.
If we can clear and hold above $405, then $407.50 remains in play (the 50% retrace). Above that could open the door to the $410 to $412 area, while near the latter we find the 61.8%.
On the downside, if we were to lose Monday’s low, the SPY would look incredibly unhealthy. If it can’t sustain above $405 and Monday’s high of ~$404, then bulls should be cautious.
Nasdaq
I really want to see if the NQ can clear the 12,500 to 12,550 area. That’s the 10-day, a prior weekly low and resistance all last week. It was also resistance on Monday and in Globex today.
This area is significant. Above it quickly opens the door to 12,620 — the 50% retrace. Above that and 12,800 to 12,850 is in play.
However, if this area is resistance instead and we can’t hold 12,400, then lower prices may be in order. Below 12,190 and the NQ is in trouble.
Oil — CL
We’re into a tough area here with oil, which is the 61.8% retrace of the recent range and a prior resistance area.
Above $166.65 opens the door to the $120 to $122.50 area. Above the latter and a retest of the highs could be in play. The recent rally opens the door for XLE stocks, too.
Should oil fade, keep an eye on the $109 to $110 area and the 10-day moving average.
Go-To Watchlist
*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. $36 to $37 is next upside target
- ABBV — Weekly up → $148.75 seems like a reasonable stop-loss level. $150 for more conservative traders. On the upside, I’d love $160 to $162 as our first trim. More conservative traders can trim at $157. Conservative trim hit.
- XOM — $91 to $91.50 target hit → B/E stop on the remainder of the position. Above $92+ and feel free to trim as much as you want. $96 to $97 is a big extension area if it can really get going.
Relative strength leaders (List is cleaned up and shorter!) →
- AR
- WMT
- PEP
- KO
- MCK
- MRK
- BMY
- JNJ
- DLTR
- DOW
- XLE
Economic Calendar
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.
