Our View
When I covered my NQ short near the low of the day, I said I was worried about a pop, but I had no idea the ES was going to rally 57 points. This is what the “new world trading order” looks like…there is no order!
The S&P is trying to find its way in a sea of tech selling. As I have always said, the S&P dislikes uncertainty and there is plenty of it. Combine that with higher yields, jobs Friday, and Putin’s meeting with Xi in China clearly isn’t a positive.
The markets have been vicious, with extreme daily ranges that many traders have never seen before. To me, the current pullback may very well continue, but just look at what happened after 4 pm yesterday — we ripped. Maybe things will quiet down and we can start to mend some of these losses. However, the risk of big moves will continue for some time.
Remember, these are not our father’s markets or charts!
I could give you some of the percentage moves, but that’s not what you are here for. I’m going out to dinner with the PitBull and if I’m not in the driveway when he gets here he will be honking his horn…
…So Onto Our Lean
The entire year has been all about big surprises, both up and down. If you asked me if I was surprised at yesterday’s selloff and big late-day rip, I would have to say, “YES!!!”
Today, the US Labor Department will release the January jobs report and it could very well be a disaster. That said, if the ES falls sharply after the report and opens with ES volume of over 350,000, I would be looking to buy that open or on the first dip below the lower open.
If it opens sharply higher, the same thing will apply.
Just like we like to lean towards buying when the ES goes out at a big discount to the S&P cash, the same is true for leaning towards selling when that discount is reversed — in other words, when the ES goes out at a premium to the S&P cash.
With the S&P cash settling at 4477.44 and the ES trading at 4520 at 4:45 p.m., that is a premium of 42.55 points over the S&P cash. I have been trying to refine my explanation, but I would sell that type of open. After that, I want to kick back and see how the day unfolds.
Do bulls grab control or do the bears make up for this pop after a strong drive on Thursday?
Daily Recap
The ES opened Thursday’s regular session at 4513.75, climbed six points, and then sold off down to 4505. After some minor back-and-fill off the low, the ES rallied back up to the VWAP at 4521.25, dipped to 4508, and then rallied up to 4533.75 at roughly 10:30.
The market found its footing and gave bulls a decent rally after the gap-down open. However, that wouldn’t prop up the market for long. Shortly after 11 am, some index sell programs hit and pushed the ES back down to 4512.50 at 11:40. After some more back-and-fill price action under the VWAP, the ES finally gave way to the downside and took out the sell stops under 4505 down to a new daily low at 4495 at 12:20 where it bounced back into the range above 4505.
At 3:05, the ES broke down to new lows at 4479 as the early MIM showed $250 million to sell. The bulls tried to salvage the day, bidding the ES up to 4498, but then the market rolled over, with the ES dropping down to 4467 shortly after 3:30. As the 3:50 imbalance showed $2.25 billion to sell, the ES fell to 4462 in less than one minute before bouncing and trading 4472 on the 4:00 cash close.
After 4:00, AMZN posted better-than-expected results and was up $400 to $500 in the after-hours. That jammed the ES up to 4522 at the 5 pm settlement. While still down 0.6% on the day (as of the 5 pm settlements), the ES climbed 60 points from its late-afternoon low.
In the End
In the end, it was another day of choppy trade on a list of many recently. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, volume was low all day but jumped in the last 90 minutes for a total of 1.753 million contracts traded.
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
Technical Edge
- NYSE Breadth: 80.9% Downside Volume (!)
- NASDAQ Breadth: 83.9% Downside Volume (!)
After four swift rallies to the upside, the S&P 500 and Nasdaq were greeted by a wave of sellers. Both the NYSE and Nasdaq registered an 80%-plus downside day, but perhaps we’re starting to find our footing here.
We have talked about a pause/pullback after the big move and I believe this type of digestion — even if swift — is healthy. However, it’s important to see the lows of the range hold.
We can’t say we’re out of the woods yet, but the after-hours action is certainly encouraging. As long as we can build out a higher low from here, the bulls may really start to regain control.
As for some of these moves we’re seeing in the after-hours, I am not too surprised. Snap fell almost 25% on the day, while PINS fell over 10%. Both have been hammered mercilessly over the past few weeks and months, but to see that kind of selling on Facebook’s numbers felt overdone — it was almost as if they had reported the poor results.
I combed the options chains, but the premiums were so inflated I couldn’t find anything with a reasonable R/R ahead of the events, so I passed (not that I’m a big EPS player). Too bad too, because Snap was up a whopping 60% in the after-hours and about 45% in the premarket.
Game Plan
We are enjoying some impressive gains in the after-hours on the back of Amazon and tech. However, we have the jobs reports at 8:30 and that’s bound to add to the mix. If it’s interpreted as a bullish report though, we could have quite the rip and make it a real “Fry-Day,e” as they like to say.
If it’s a badly-received report though, it could create some chop.
Update: While the above is still our outlook, the ES has given up its overnight gains and is trading around yesterday’s low. Once the jobs report is out of the way, I’m wondering if that could lean towards the long side as a “sigh of relief.”
S&P 500 — ES
We have looked at the SPY endlessly this week, so let’s look at the ES futures.
Bouncing from the Globex lows, I really want to see last week’s high at 4446 and the 200-day moving average hold as support. If it can hold these levels and bounce, let’s see if it can reclaim the 10-day and 4510.
Above 4510 opens the door to 4528, then 4545 to 4550. Above that and 4580 will be back on the bulls’ radar.
A break of the 200-day puts 4400 back on the table. Below and we’re back into the wide-range chop.
Individual Stocks & Go-To Watchlist — F, XOM, MKC
There are so many post-earnings moves it’s hard to keep up with them, not to mention all of the other mega-moves we’re seeing in this tape. We have been lucky in that our SPY trades have been working out really well all week.
Otherwise, I have been focused on a few individual names here and there, and mostly taking day trades off our Go-To watch list, because that’s where the Relative Strength has been.
Ford
Ford was rejected by the 50-day moving average for the second time in two weeks. Now it’s down about 6% to about $18.70 in pre-market trading.
I am keeping an eye on this $19 range support area, which has been in play for several months now.
Just below that is last week’s low at $18.80 and the 21-week moving average. An undercut of this area and reclaim could get us a low-risk long position going, particularly if the overall market goes into rally-mode off the open.
I will be watching this setup closely.
XOM
XOM has traded really well since reporting earnings. It’s bull-flagging now on the H4 chart. I would love a tag of the 10-day here, followed by a bounce and a reclaim of the prior lows.
That could get another move higher brewing, especially with crude pushing to multi-year highs.
MKC
MKC has been on fire. Aggressive longs can target a dip-buy on the lower timeframes — like the H4 — or even the H1, that’s how strong it’s been — however, especially keep an eye on the 10-day ema & $100 level.
Go-To List
- UPS — Not doing a chart yet. But watching daily and/or H4 moving averages and a potential retest of the B/O area near $220 for a buying opportunity. Great EPS reaction
- Energy!!!
- AAPL — back on the go-to list. Amazing tag off the H4 10-day late Thursday
- NVDA
- ABBV
- CVS hit new highs on Friday.
- BRK.B
- TD — Weekly-up at $80.45 flagged this week — beauty so far
- V & MA — back on the go-to list
- BROS — H4-up would be attractive tomorrow.
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
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
Economic Outlook
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