Our View
The last time I was overconfident, the ES rallied 150 points and then puked as the headline algos took over the tape. The market has given bulls several false “go” signals over the last few weeks.
Perhaps without all the Covid headlines we would already be trading at new highs, but there are no shoulda, woulda, coulda’s in trading. It’s all in the here and now!
Here is the MrTopStep holiday schedule (futures included).
Our Lean
I’m going to keep it short and sweet: I think there could be some weakness and/or a dip today. Sell the early rallies and buy the pullbacks or just be patient and buy the pullbacks.
Daily Recap
The ES rallied 37 points up to 4606.50 on Globex and then a headline hit that Jim Cramer and Carl Quintanilla both have Omicron and the futures dropped 30 points down to the 4590 level. The market opened Tuesday’s regular session at 4594.75 and rallied up to 4603 in the first minute, sold off down to 4593.75 at 9:35, and then rallied up to 4604 — all in the first 10 minutes.
After that pop, we had some more selling pressure with the ES dipping down 4580 at 9:50, before rallying back toward the open near 10:21. The ES officially bottomed at 4572.25 shortly after 10:30 and went on a monster run into the close.
However, there was a big rotation going on: Buy the Russell 2000, sell the ES, NQ, and YM. This is exactly what Jeff Hirsch spoke about when he went over the end of the year stats, which is the big institutions buying the beaten-down small caps.
From the low, the ES rallied 57 handles over the next two hours, topping out near 4630 near 12:30. After five straight gains on the 30-minute chart, the ES coughed up 7 points just after 1:00 pm, but that didn’t hold the bulls back for long.
The ES rallied up to a new high at 4638.75 at 3:05, pulled back down to 4628.50 as the early MIM showed $872 million to sell and then sold off down to 4622.25 at 3:46. The ES traded 4627 at 3:50 and traded 4640.25 on the 4:00 cash close — up 20 handles from the low less than 20 minutes prior.
After 4:00, the ES traded up to 4642.25, sold off down to the 4635 level, hit a high of 4643, and settled at 4642 on the 5:00 futures close, up 71 points or 1.55% on the day.
In the End
In the end, nothing comes easy in the S&P and Nasdaq futures. We have seen a lot of failed rallies, but as more families take time off for the holidays, the low volume should favor the upside.
I still don’t think new ES highs are out of the question.
In terms of the ES’s overall tone, it acted firmly. In terms of the ES’s overall trade, volume was steady at 1.46 million contracts traded.
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Technical Breakdown
- NYSE Breadth: 86.7% upside volume (!)
- NASDAQ Breadth: 81.1% upside volume (!)
What a robust day of breadth, which was strong out of the gate and didn’t let up. Interestingly, the S&P and Nasdaq both sold off in the first hour of trading. But because the breadth had remained so strong, it should have had buyers looking for some type of low to buy against.
There were pros and cons to the day.
We had some decent follow-through on UNH and my-oh-my, that buller reversal in Canopy Growth (CGC) really paid the bills this month (and closed at the high!)
We came into the week not necessarily overly bullish on the indices, but bullish on a handful of setups. The one that did get me though? Tesla.
A Lesson
I had some mixed signals flying around on Tuesday. Breadth was through the roof, even as the S&P was moving south. Growth stocks were performing well and TSLA opened higher but was not robust.
It gave us that quick trigger up through Monday’s high (daily up) and I went with that. But it petered out almost immediately and hit my stop. Here’s what I wrote before the session:
“With Tuesday’s gap-up though, I don’t know that we’ll get a test of these measures in the short term. Daily-up over $922 may be enough to put $950 in play, then potentially the 10-day moving average.”
“These measures” referred to the 200-sma on the 4-hour chart and the 21-week moving average. Ironically, we got a near test of these measures once the daily-up had failed.
Tesla later went daily-up again, closed higher by almost $20 a share from our entry, and is up another ~$35 in the pre-market through our first set of targets.
That’s a bitter pill to swallow, as I would have been in this one had I approached with more patience.
In the end, I shouldn’t have been so quick to trade the daily-up rotation with the indices eroding lower and I should have waited for a 5-minute close above the trigger.
I just knew the potential that Tesla would have to give us $40 to $50 a share and didn’t want to miss it. That overzealousness is the difference between sitting in a nice trade and trimming into profit and getting stopped out on a premature signal.
The strong breadth also gave me a bit too much confidence.
Trades fail all the time, so why is this one any different? It’s a lesson and it’s a reminder. On rotations, we need more proof than just a wick through the level we’re watching. We need it to sustain. Find the positives in our failures and we become infinitely better (both in trading and in life). Cheers!
S&P 500
With yesterday’s rip and close near the highs, the S&P 500 is back above the 50-day, 21-day, and 10-day moving averages. I would love to close Wednesday lower by less than 10 to 12 handles (or ideally, finish higher).
That keeps the S&P 500 above all of the aforementioned moving averages. If we can’t do that, I at least want to see the S&P maintain above the 50-day.
On the upside, 4665 is the next level to keep an eye on before 4700.
Individual Stocks — ARKK, PG, AAPL
Volumes may start to evaporate after the opening few hours today, as traders start to pack it in early for the holidays.
Our buy-the-dip in PFE (flagged on Monday, triggered on Tuesday) is bouncing nicely. UNH continues to hold up as we ride it against a break-even stop. We got the declining 10-day in Canopy Growth, which gave us a chance to trim and/or raise our stops.
So in essence, we are watching the market today but just looking to milk some of the trades we still have in place.
ARKK
We have been all over this ARKK trade for a while now. Back over $97.50 and ARKK is above the bear-market low from May and has gone weekly-up. However, it needs to clear the 21-day moving average and $100.
If it can do that, we should see some relief in growth stocks and its top holding: Tesla.
That would put $103 to $104 in play first, followed by $110 and the 50-day. Back below $97.50 and the 10-day, and I will be more cautious on ARKK.
PG
For those that missed PG on the dip to the 8/10-day moving averages on Monday morning, they may get a second chance here.
PG gave us an inside day on Tuesday, which is surprising given the rally in the rest of the market. An inside-and-up over $158.15 could be another long entry.
The trade could fail — of course — but we have a relative strength leader resetting to trend support giving us an inside day. It’s at least worth a look.
Apple
Interesting setup here with Apple dipping to the 21-day moving average and bouncing hard yesterday. We have a slight pull in the premarket and I don’t want to be too bullish coming into the day due to some of the recent rug pulls.
However, Apple is back above its short-term moving averages too.
If we can get a lower open and a push back through Tuesday’s high at $173.20, we might have a decent cash-flow trade for a few bucks that turns into a swing as we shoot for $178 to $180.
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
