Technical Edge
- NYSE Breadth: 85% Upside Volume (!)
- NASDAQ Breadth: 74% Upside Volume
- VIX: ~$27
Game Plan: S&P, Nasdaq
The VIX has gone from sub-$20 to $27 in just a couple of trading sessions, as the bear-market rally has quickly run into a brick wall.
Powell & Co. made it clear on Friday that the Fed will not rest until inflation is nailed into the coffin and buried six feet deep. It will not stop short and the Fed will not run the risk of stopping too early — even if that risks a recession. That’s as we have a tight labor market.
In Q4 2018, we saw a sharp V-bottom recovery as the Fed flipped from hawkish to dovish. In March 2020, the Fed (and global central banks) stepped in to provide an immense amount of liquidity amid the pandemic.
In both cases, these V-bottom market rallies were spurred by the Fed’s willingness to provide liquidity. That is not the case here; not yet anyway. As a result, we “cannot fight the Fed” and right now, the Fed remains hawkish.
S&P 500 — ES
Last week, I wrote a “thought out loud” note, asking: “Could it really be so obvious to top at the 200-day and pull back to the 50% retrace and 50-day moving average, near 3980 to 4000?”
It appears that the “obvious” setup panned out, which is somewhat surprising. And I hate to make it sound easy because it’s anything but…but on Friday we noted that a break of 4100 and failure to get back above it opened the door to 4000. Overnight, the ES printed ~4006. There now, this is make-or-break territory.
This zone is significant. Between 3985 and 4000, we have the 50-day moving average, 50% retracement, and the VWAP measure anchored to the June 16 low.
At the very least, I expect some sort of bounce from this area, even if it’s meager. We have a pretty clear “ABC” pattern down to this zone. While that doesn’t exclude another “E” leg to the downside, I do expect some sort of stability — again, even if it’s fleeting.
On the upside, keep an eye on Friday’s low around 4042.75. Above that, 4075 to 4085 is a potential resistance zone, followed by the 4110 to 4115 zone. The latter is the 50% retracement and last week’s support before Friday’s tumultuous session.
Below 3985 spells big trouble for the ES.
Nasdaq — NQ
We have a very similar look in the NQ, with the index printing 12,401 at the low during Globex. In the 12,388 to 13,500 zone, we have the 50% retracement, 50-day moving average, and the VWAP anchored back to the June low.
The NQ needs to bounce from this area.
Keep an eye on 12,557 — the gap-fill area. Above that and 12,675 to 12,700 could be a resistance zone, followed by 12,800 to 12,825.
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.
For those that want to preserve their gains, feel free to exit any position below, as many are a ½ positions or less.
- UUP — Down to ¼ position as we hold for potentially higher prices. Raise stops to $28.40 to $28.50.
- CHNG — second target of $25 hit. Now down to just ⅓ position. Take all profit here or move to a B/E stop and look for $25.50.
- Still looking for $25.50 on the upside, but can be back up to a ½ position or more $24.73. $24.25 is a reasonable stop-loss for those that added.
- AR — Out ⅔ of position after hitting our second target at $44. B/E stop. Might as well look for $46.50+ for the rest.
- O — long from $70.50, as mentioned in yesterday’s midday update. $72.50 is our first upside target. $68.75 is a reasonable initial stop-loss.
- HRB — long from $46.75. Raise stop to $45.50. Can make a minor trim at $47.50 just to get some risk off the table, but really looking for $48.25+
Relative strength leaders (List is cleaned up and shorter!) →
Top:
- HRB
- XLU
The Rest:
- CNC
- F
- BMRN
- APLS
- ENPH
- TAN
- FSLR
- LNG
- PWR
- CHNG
- CELH
- COST
- UNH
Economic Calendar
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