Danny’s View: Powell Comments On Tap As S&P Sits At Key Juncture

AAPL is not telegraphing a good message on the charts.

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Don’t Forget: The Long-term performance of the S&P 500, some longer-term setups, and 5 red flags that showed up before the 2022 bear market. 

Our View

The days of zero borrowing cost are gone and so is borrowing money at 1% or 2% and investing it in the stock market. There are not many people that talk about this, but the stock market has delivered a lot of pain to retirees or someone on the verge of retirement. After all the QE following the credit crisis, most retirement accounts saw their best performance ever. From the Credit Crisis low to the S&P 500’s all-time high, the index gained 622%. The Nasdaq gained almost 1,200% in the same time frame. 

Low rates and the Fed’s infusion of billions of dollars into the economy helped power the move. Now with higher rates, tech sanctions, supply chain problems, chip shortages, and overvalued tech companies have caught up with the tech sector. I believe 7 tech companies make up 40% of the market capitalization of the Nasdaq. 

The bottom line: If tech remains under selling pressure — which I think it will — the ES will have a hard time holding the rallies. In short, the NQ steers the ES right now and the ES can’t go up until tech is done going down. 

Our Lean — Danny’s Take

Federal Reserve Chair Jerome Powell will deliver his speech to the Brookings Institution today at 1:30 ET and take questions. This will have the stock market’s attention today. 

I don’t know how this can be good, but we shall see. On Thursday, the latest jobless claims report and manufacturing-sector data are due out and the November jobs report comes out Friday. This means some rocky days ahead — AKA chop. 

Our Lean: It seems to me anytime the ES sells off under 3950, it’s a buy, but how long can this go on? I think today may change that. Our lean is for buying weakness in the first part of the day. That doesn’t mean I won’t be looking to sell some rips, but I want to go flat before Powell speaks. 

It is what it is, folks. Is this the best trading environment? Frankly, no. But you can’t do anything except trade what it’s front of you while waiting for a healthier environment to emerge. 

MiM and Daily Recap

The ES opened Tuesday’s regular session 3969, traded up to 3974.75 at 9:35, and sold off down to 3961 at 9:55. It then rallied up to 3981.75 at 10:30 and then dropped down to 3948.50 at 11:16 before rallying up to 3961.25 at 12:46 — aka chop. After the high, the ES sold off down to 3947.75 at 1:23 and rallied up to 3969.50 at 2:04 and then traded down to 3950.25 at 2:50 and up to 3963.75 at 3:36. The ES traded 3961.50 as the 3:50 cash imbalance showed $791 million to buy and traded 3961.25 on the 4:00 cash close. The ES settled at 3962.25 on the 5:00 futures close, down 8.25 points or 0.21% on the day. 

I hate to say it, but in the end, the NQ ruled over the ES (again). In terms of the ES’s overall tone, it was weak but I thought it held up well. In terms of the ES’s overall trade, 1.448 million contracts traded.

Technical Edge

• NYSE Breadth: 73% Upside Volume
• Advance/Decline: 57% Advance 
• VIX: ~$22

We have a plethora of data today — everything from GDP data to JOLTs. But the big one is Powell’s 1:30 ET speech. 

The Fed’s tone remains hawkish, even though they are (seemingly) prepared to back off the rate hikes a bit. That will be bullish for stocks eventually, but the Fed wants to telegraph a clear message: They are not dovish. 

We’ll see how that impacts the tape today, which was quite choppy yesterday despite 73% upside volume on the NYSE. With the monthly jobs data due out tomorrow, it could be a choppy couple of days. 

S&P 500 — ES 

A lot is going to hinge on how the ES handles today’s data and Powell’s comments. I would preach patience. 

If we go with the KISS route, it’s really as simple as this: Above yesterday’s high (3990) without reversing lower opens the door back into 4000 and puts the 4050 area in play. 

A break of yesterday’s low (3941) opens the door down to the 3910 to 3920 area and the 21-day moving average. 

SPY — Daily

Daily up over $397.30 puts $400 to $402.30 in play. 

Daily down under $393.30 puts $390 and the 21-day moving average in play. 

The caveats here are: 

1. On rotations, we need proof. Just a wick above/below the prior daily range is not enough. We need a push through either level and then need to hold said level.
2. Powell’s comments have the potential to create a choppy session and/or false moves. Be prepared for afternoon headline risk. 

Dow 

Bend don’t break. The DIA held active support yesterday. Daily-up over $339.37 could put the bull-trade back in play. 

The only risk? Powell in the afternoon. A larger pullback to the $332 to $333 area has my interest if it holds the 21-day moving average. 

TLT

The TLT has been a huge win for us this month, as it has consistently climbed higher and higher. 

I want to see how it handles a dip to the 10-day ema, which it has not tested in 13 sessions. Bulls need to see the TLT hold the $100 to $100.50 area and the 50-day moving average. 

If support holds, the recent highs in the $103s are in play, followed by a push to ~$105.

The monthly chart is setting up for an inside month, giving bulls a potential inside-and-up month to work with starting Friday:

AAPL

Apple has not looked healthy whatsoever this week. Monday’s gap down tried to rally back above its key moving average and was rejected. On Tuesday it rotated lower. 

Now in no man’s land a bit, Apple needs to regain the $146 area or lower prices may be in store. The $133 to $135 area may offer a decent R/R for buyers. 

Go-To Watchlist

*Feel free to build your own trades off these relative strength leaders*

• Numbered are the trades that are open. 
• Bold are the trades with recent updates. 
• Italics show means the trade is closed.

Open Positions — 

1. TLT — Now ⅓ to ½ position here. Raise stops (B/E at minimum) and looking for $104.50 to $105 next.
   1. Also looking to refill on a dip to the $100 to 10-day ema area. 
2. CCRN — down to ⅓ or less. Exit at $36+ or consider holding for $37.50 to $38. Stop at $32.
3. QQQ — Just down to runners. #cheers
4. DIA — Just down to runners, if you want. #Cheers
5. Gold — A traction-less trade thus far, although we were able to cut ½ the position above B/E and get our exit about 1760.
   1. Can be down to ⅓ or less or out completely. Shoot for 1775 for the next trim.
6. DXY (US Dollar) — position technically closed, but for those still short, let’s see if it retests this week’s low. Move stop-loss to just above this week’s high. 

Relative strength leaders →

1. LNG 
2. CAH 
3. TJX 
4. SBUX
5. DE

• CCRN
• AMGN
• GIS
• REGN
• CI
• MCD
• ENPH, FSLR — solar has strength 
• VRTX
• UNH
• MRK
• XLE — XOM, CVX, COP, BP, EOG, PXD (Weekly Charts)
• SBUX

Economic Calendar

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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!