How it handles the decline will say a lot about the market.
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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
We have had three pretty notable upside days for the S&P, but the recent rally is going to be challenged today.
GOOGL and MSFT reported disappointing results, with both stocks down 6% to 7% at the end of Tuesday’s after-hours session. Meta reports tonight, but it will really be Apple and Amazon on Thursday night that have a chance to save (or sink) the markets.
T+2 is approaching as the end of October is nearing. Will this month be the bear killer or is there one more shakeout left?
Our Lean
As I said in the MTS chart, negative earnings reports can disrupt the trend and that is what happened yesterday. Does it mean the rally is over?
If you look at the summer rally, the ES rose 688.5 points from the June low to the August high. During the most recent rally, the ES has climbed about 372 points. While I have been a cautious bull, yesterday’s selloff seems like it could be a possible high, especially with where it aligns on the chart.
How the market digests MSFT and GOOGL — which combine for $3.25 trillion in market cap — may determine where we go from here.
Our lean is to sell the rallies especially if the futures get back up toward the 3860 to 3870 level.
Daily Recap
The ES traded in a narrow Globex trading range from 3818.60 down to 3990.25 and opened Tuesday’s regular session at 3808.75. After the open, the ES exploded higher right out of the gate, climbing 56.5 points until it peaked at 3863.50 at 12:20. The ES rallied about 59 points in the first 30 minutes, making it clear which side was in charge.
I have been writing about what I call “extreme moves” and with the exception of a few small dips, this was an extreme move to the upside.
After the high, the ES sold off back down to 3844.25 at 1:17 and then rallied up to a new high at 3866.25 at 2:46. It dipped 10 points, then climbed to 3873 at 3:32 as the early MIM showed $377 million to buy. The ES traded 3870.50 as the 3:50 cash imbalance showed $850 million to buy and then jumped to $1.6 billion to buy while the Nasdaq imbalance was for sale.
The ES traded 3870 on the 4:00 cash close and dropped all the way down to 3845 after GOOGL and MSFT disappointed. The ES traded 3853.25 on the 5:00 futures close.
In the end, it was all buy stops and buy programs. In terms of the ES’s overall tone, it was firm from the 9:30 open until the 4:00 close. It was pressured after that due to earnings. In terms of the ES’s overall trade, volume was on the low side at 1.8 million contracts traded.
Technical Edge
- NYSE Breadth: 85% Upside Volume
- Advance/Decline: 84% Advance
- VIX: ~$28.50
Yesterday we had a better-breadth rally, as bonds ripped and the dollar faded. Today’s early lean is for a continuation in those trades, as bonds are up and the dollar is down.
But because of weakness in tech, the recent stock gains are being challenged on Wednesday morning.
Remember, GOOGL and MSFT were two of the long-term setups I was keeping an eye on. I still like them in similar areas.
S&P 500 — ES
Traded right into the 50-day and now struggling a bit. If the ES loses 3800, it puts 3750 to 3760 in play (the 10-day ema).
If it can hold prior resistance near 3820 as support, that’s very constructive for the bulls — especially in light of GOOGL and MSFT earnings — and keeps 3875 to 3900 in play.
If we zoom in a bit to the H4 chart, keep an eye on the Globex low near 3824 and the 10-ema. A test of this area — like an undercut and reclaim — could give us a long to work with early in the session.
Otherwise, a break of this area could put 3790 to 3800 in play.
S&P 500 — SPY
If this is the high for this leg’s rally, it will ultimately look like a clean rejection from the 50-day (even though we didn’t quite get a test of it).
In any regard, #KISS.
SPY needs to find support from $372 to $374.50. That’s the 50% to 61.8% retrace zone of the current 3-day rally. It’s also where we find the 10-day.
Dollar — UUP
Dipping again this morning, I think the dollar sets up as a possible long trade.
It’s set to open at or near the 50-day and 10-week moving averages. That has been support for the last six months and has treated us very, very well thus far.
Below $29.50 could put $29.20 in play, but for now, I want to be long the dollar on the dip, as that has been the trend.
GOOGL
Set for an open near $97, the low-$90s could be a key area to watch this week — $90 to $94.
MSFT
Trading $233s in the pre-market and perhaps the $219.xx low isn’t in the cards today. However, that $210 to $220 zone is vital for MSFT going forward in the short- to intermediate-term.
Long-term, Microsoft is a top stock to nibble after a 40% decline, IMO.
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
- XLE — Trimmed into strength on Friday and now down to ⅓ position here (or lower). On the downside, use a B/E stop.
- You can either be out completely at $87.50 to $88 or leave a runner for $90+
Relative strength leaders →
Top (absolutely gorgeous moves lately):
- LNG
- MCK
- CAH
- CI
- CCRN
- GIS — watching the weekly-up setup from Tuesday.
- LPLA
- REGN
- ALB
- VRTX
- UNH
Economic Calendar
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