Sorry Traders & Faders, but Santa doesn’t seem to be coming to town this year.
It has not been a good stretch of trading and it remains the case that each rally is being sold. Yesterday’s Opening Print was a long one. I want to keep today’s short and sweet because the volume is so low and the market can really do anything in a two-day stretch during a big rebalance.
Remember Santa Claus Rally is an indicator not a Trading Strategy. To wit Yale’s famous line: “If Santa Claus Should Fail To Call, Bears May Come To Broad And Wall.” (Stock Trader’s Almanac 2023 p 118).
Our Lean — Danny’s Take
The ES rallies on Globex, sells off before the regular session, and then fails. This pattern showed up not long after the tax selling started. And guess what? The ES is rallying on Globex again today.
I can’t say the ES is going up or down in the last 2 trading sessions of 2023, but what I can say is that it’s the same type of selling that has been hitting the index market every day for the last several weeks.
The ES has fallen in 2 straight days, 3 of the last 4, and is now working on its fourth straight weekly decline. It has not been able to muster up a few short-covering rallies and bounces, but they all fizzle out as the buyers completely lack any meaningful strength right now.
I am not going to make any end-of-the-year calls for 2022. What I will say is the overall price action is weak but “continues to hang around 3835” — remember that level and its relevance with the JPMorgan collar.
Will the ES just stay there? Well, it has so far, but if the NQ keeps going down, the ES will go for the ride. Keep track of the rotations too.
Our lean: Keep an eye on 3840 to 3850. For now, it’s potential resistance and the “halfback” of yesterday’s range. Above and it could put the 3870 to 3875 area in play. Otherwise, be guarded against another Globex rally.
MiM and Daily Recap
The ES traded up to 3869.50 on Globex and opened Wednesday’s regular session at 3854. After the open the ES sold off down to 3846.75 and then quickly rallied up to 3875 at 9:36 and then sold off 49 points down to 3826 at 11:17. From there, it traded up to 3834 at 11:22, back down to a new low at 3813.25 at 12:26 and then rallied up to 3843 at 1:13.
After the pop, the ES pulled back down to the 3821.75 at 2:16 and then quickly popped up to 3834.50 at 2:46 and then traded down to a new low at 3804.50 at 3:46. The ES traded 3808.50 as the 3:50 cash imbalance showed $652 million to buy, traded 3806.75 on the 4:00 cash close, and settled at 3810.25 on the 5:00 futures close, down 47.50 points or 1.3% on the day.
In the end, the ES has been making highs on Globex and then failing almost every day. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, volume was ~1 million contracts on Tuesday, and yesterday it was 1.2 million contracts traded.
Month to date, there have been 18 trading sessions, with 7 up days and 11 down. No matter how the year closes out, it’s going to be impossible to erase the 9% decline from the 4180 high on Dec. 13.
NYSE Breadth: 18% Upside Volume — (!)
Advance/Decline: 21% Advance
S&P 500 — ES
I was briefly talking with a colleague/friend the other day when he told me he is finally turning the corner on a nasty cold and cough he’s had for a few weeks. Hopefully, I can join him in saying the same as I have been under the weather as of late.
And hopefully, yesterday’s levels helped keep readers out of trouble.
That’s as the 3870 to 3876 area continued to act as resistance, with yesterday’s regular-hours high coming in at 3875 shortly after the open.
15-min chart above.
I’m keeping an eye on the 3840 to 3850 area. Admittedly, it’s a big 10-point zone. But as Danny has said, the ES continues to rally on Globex and fade in the regular-hours session.
Maybe they change gears and rally them for a change here. I wouldn’t be surprised if they lulled the shorts to sleep like that, then ran them off the road.
In any regard, I’m watching this area as the 50% to 61.8% retrace zone, with the 200-SMA in the middle.
If the ES can clear this area, then 3867 to 3870 is up next.
4-Hour chart above for SPY, where I’m watching the declining 10-ema and the high of the prior bar at $379.39.
If it can clear this area and hold above it, it opens the door back up to yesterday’s high and the declining 10-day moving average.
On the downside, a break of $376.42 could put last week’s low in play. Below that and the 61.8% retrace of the recent range is in play near $372.
Fairly decisive fall yesterday. Below $259 and the odds that the QQQ goes on to retest the low goes up considerably.
Open Positions —
Numbered are the trades that are open.
Bold are the trades with recent updates.
Italics show means the trade is closed.
UUP — Ideally needed a close back over last week’s high of $27.95 and we closed AT $27.95. Long against $27.75 is fine with a ¼ to ⅓ trim at $28.15 to $28.25. Ideally looking for $28.40+
LNG — Long from ~$151, now Trimmed ⅓ at $157.50. B/E Stop (but aggressive traders can use $147). I prefer B/E, for what it’s worth. — (B/E stop hit)
TLT — Slow start but we’ll see. I will feel better about TLT if it can clear and hold $101.10.
For now I’m using $98 as my stop. On the upside, can consider a small trim at ~$102, but really I’m fishing for $103.40 and the declining 10-day.
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
LNG — keep an eye $150
SBUX — nicely weekly-up setup after 10-week ema reset.
DE — gap-fill & 10-week would be attractive for potential longs
SMCI — weekly up over $85.85
HON — weekly
LMT, RTX, NOC
MET — weekly
MCD — weekly
FSLR — $140 is the 21-week sma and retest of prior resistance
Disclaimer: Charts and analysis 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!