Some big events are on deck over the next 48 hours.
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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
Welcome to the chop shop and that’s exactly what yesterday was. The S&P found some momentum late yesterday, but before that, it was a messy day ahead of today’s midterms and Thursday’s CPI reading.
There is a lot of bullishness out there and Goldman’s top economist said there’s still a “very plausible” path for the US economy to avoid a recession despite the Federal Reserve’s aggressive tightening and geopolitical uncertainties. And Morgan Stanley said investors should stay bullish on equities ahead of this week’s US midterm elections.
That said, we are still about 325 points off the low in the ES (or almost 10%). Despite the Fed’s “higher for longer” approach and the loss of Big Tech leadership.
For now, we will simply go from level to level. We’re not here to fight the tide; we’re just here to ride the waves.
Our Lean — Danny’s Take
We were right about selling the gap-up open and selling the early rallies, but it was just too ‘thin and choppy’ to get any real momentum going.
The 50% retracement held the ES in check yesterday. Even with the late-day push, the ES closed at 3815.25, one point below the 50% retrace at 3816.25.
As for today, Our Lean is to:
Keep an eye on 3822 — yesterday’s high. That to me is a pivot of sorts. Below it is less constructive and above it can open the door to another 20 to 30 handles higher. If we see a morning selloff down to 3800, I’m a buyer.
Daily Recap
The ES traded down to 3738.25 on Globex and opened Monday’s regular session at 3794. After the open the ES traded up to 3799.50 and then dropped down to 3771.25 at 9:59 and then rallied up to 3800 at 10:16 and then traded down to 3773.25 at 10:39. While the size of the moves was not as extreme as last Thursday and Friday there was still a lot of ‘stop and go’ action.
After the pull back the ES rallied up to 3797.75 at 11:33 and then dropped down to 3773.75 at 12:01, rallied back up to the vwap at 3784.50, back and filled for the next 40 minutes and rallied up to a lower high at 3796.25 at 1:13, dropped, did another round of back and fill and traded up to 3821.75 at the early MIM showed $395 million to buy at 3:33. The ES traded 3819.00 as the 3:50 cash imbalance showed $997 million to buy and traded 3816 on the 4:00 cash close. In the end, a few things stuck out. First, the range was smaller and more narrow. Second, thin-to-win was clear (low volume). Lastly, buy-stops were piled in above 3800. In terms of the ES’s overall tone, it was ‘back and fill’ until 1:45 ET and then got a lift from several buy programs. In terms of the ES’s overall trade, volume was LOW at 1.45 million contracts traded, 1 mil less than last Friday’s volume and 800,000 below the 20-day average.
Technical Edge
- NYSE Breadth: 59% Upside Volume
- Advance/Decline: 64% Advance
- VIX: ~$24.50
S&P 500 — ES
There’s a little bit for both bulls and bears here.
Bears: Keep an eye on yesterday’s high of ~3822. If the ES loses this level and can’t regain it, we could see some pressure back toward 3800. A break of 3800 opens the door down to 3770 to 3775.
Bulls: If the ES can sustain over 3822, it opens the door to the 61.8% retracement at 3842.50, then 3860. Above that could put 3900 to 3920 in play.
ES — Buy the Dip?
I think this is an interesting chart, showing the tug-of-water we’re seeing at the 50-SMA and the 50% retrace on this 4-hour chart.
You may notice how the ES has struggled to close over the 50% retrace on an H4 basis. A push higher brings us 3842.50, as mentioned above.
However, if we happen to pull back in early trading, keep a close eye on 3800. Not only is that the Globex low and a nice round number, but it’s also where we find the 10-ema. This may give us a dip-buy opportunity should it present itself early in the session.
SPY
Cut and dry: Bulls need to keep the SPY above the $379 to $379.50 area.
If they can, $382+ is in play. If not, $377 then $375.50 is on the table.
QQQ
Daily-up over $268.14 could get us $270 — but note that that’s roughly where we find the 10-day and 21-day moving averages.
Below $266.75 is a problem for the bulls and keeps the $259 to $260 area in play.
Nvidia
I happen to be long some Nvidia, as we flagged it in late September. However, I would be remiss to not point out the stock’s gap-up of ~3.5% as of 8:15 a.m. and the overhead gap-fill near $150. That’s along with the 21-week moving average and the weekly VWAP measure.
Some traders may even consider that a high-R/R short.
CCRN
CCRN has been kind of all over lately, but if we see $30 to $31, it may be worth a shot. There we find the prior breakout level and the 50-day moving average.
FSLR
Maybe we missed our perfect opportunity here in FSLR, but this is the sort of thing I’m on the lookout for from our list of relative strength stocks below.
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.
- Italics show means the trade is closed.
Open Positions
- GIS — Down to ⅓ to ½ after $82 trim. Next trim is $85 to $86, but seems less likely given the climate. Stop at $78 if you’re still in.
- UUP — We are out anywhere between ⅔ and ¾ of our position here. $29.65 stop or B/E on the remainder. Your choice, great trade.
Relative strength leaders →
Top Picks (these have been Robust lately):
- LNG
- MCK — great reset at 10-ema
- CAH — monster move.
- CI
- CCRN
- GIS
- LPLA
- REGN
- ENPH, FSLR — solar has strength
- VRTX
- UNH
- MRK, AMGN
- XLE — XOM, CVX, COP, BP, EOG, PXD
- TJX
- NOC
Economic Calendar
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