Markets are under pressure as bonds fall and dollar rises.

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Our View

If I look in the Wall Street Journal, I’m sure I can come up with some interesting topics, but the only topic that matters right now is what the Fed is going to do and what it’s going to say. 

Because inflation has slowed a little and we had had a nice rally in the market, many investors thought the last Fed meeting would be a positive turning point. 

Now though, we’re fresh off of a hotter-than-expected CPI report and the S&P 500 has been weak (down in 4 of the last 5 weeks). One could always argue that we’ve declined into the event and are pricing in the bad news. But with the way the S&P has tried to hold up since last Tuesday’s bloodbath, it almost feels like hope is keeping it up. 

Investors hope that Powell & Co. aren’t too aggressive, with the rate hikes or rhetoric around its hawkish stance. 

The reality is that the Fed is hellbent on killing off inflation. They don’t care that the S&P is down about 19% from the highs — in fact, they probably view that as okay. We are fine with being wrong on this point, but it doesn’t seem worthwhile to bank on a Fed pivot/hint at relief. Not here, not now. 

Powell & Co. have one goal on their board and that’s to tackle inflation, not to boost equities. Again, we could be wrong and they may hike their 75 basis points and soften up their tone (dovish) but I don’t see it happening. Not after the print we had on Tuesday. 

Our Lean — Danny’s Take

My own opinion is that it’s impossible to pick the exact price and time of a move. Sure you can pick a bottom with a little bit of hindsight, but what I’m talking about is how the ES rallied 50 points off its low last Friday, then rallied out of the gate yesterday morning, and then fell into a miserable chop for most of the day. 

I keep thinking to myself: Use wider stops, get away from the screens! I am always worried that if I don’t put in a stop it will keep going against me, but in reality, I know 80% of my stops get filled on some stupid buy/sell program. 

Our Lean: We’re coming into the session under some pressure, as global markets work against US equities. If we pop, look to sell the 3900 to 3905 area if we get there. Above that is 3920. The S&P did pretty well yesterday, but don’t forget the larger trend in play. 

The technical section below has more details. Good luck today.

Daily Recap

The ES opened Monday’s regular session at 3854, traded 3853.25, and then rocketed higher up to the 3905-ish area in the opening higher. 

The S&P futures pulled back about 33 points going into noon, bottoming near 3970 and we stuck in a wedge pattern most of the day. It climbed 25 points to the low-3890s and dipped 17 points down to 3879 at 2:20.

At 3:00, it made a punch up through wedge resistance and plowed its way up through 3905 — a key pivot since Thursday afternoon. The ES traded 3912.50 as the 3:50 cash imbalance showed $527 million to sell and traded 3918.75 on the 4:00 cash. At the 5:00 futures close, the ES was up 27 points or 0.70% on the day.

In the end, it was a frustrating, choppy session built by and for the algos. In terms of the ES’s overall tone, the ES was weakish until late. In terms of the ES’s overall trade volume was steady at 2.1 million contracts traded, but the lowest since Sept. 9.

  • Daily Range: 80.75 points
  • High: 3927
  • Low: 3846.25

Technical Edge

  • NYSE Breadth: 75% Upside Volume
  • NASDAQ Breadth: 57% Upside Volume 
  • VIX: ~$26.50

Game Plan: S&P, Nasdaq

Yesterday’s rally is getting some cold water thrown on it today. 

The dollar is rallying and bonds are getting smoked as the TLT is trading new 2022 lows in the pre-market.

The 2/10-year spread (a key recession indicator) has been negative for 10 weeks and is at its lowest level since August 9. At -0.46%, it’s just 2 basis points above the low. 

For those that watch the 3-month/10-year spread instead, it’s at its lowest level in a month and 12 basis points above 0. 

Those aren’t observations to be scary, just the reality of “the bigger picture.” if they can undo some of these moves, maybe that gives equities a little relief. Otherwise, keep these in the back of your mind. 

S&P 500 — ES

Still keeping the 3905-ish area as a key pivot on my screens. Yesterday’s wedge resolved higher in an impressive manner and 3905 was taken out. However, it’s now being taken out in this morning’s Globex session as well. 

If we keep dropping or stay flat-ish until the open, but then rally after the open, I’m looking at a potential sale near 3900 to 3905. 

If the ES clears this zone, 3930 to 3935 could be in the cards (and possibly another selling opportunity). By the way, these “sales” are just trades; one of many and not a lifestyle change. 

On the downside, 3880 to 3890 could an area where the ES stabilizes (the 50% to 61.8% retrace zone). 

3950 to 3955 could be buyable for a bounce, unless we fall and knife right through this area. 

ES — Daily

It’s not easy, but the levels are simple. 

Above 3905 puts 3925 in play. Above 3935 and we could see 3950. 

Below 3900 keeps 3850 in play, a key two-day low. A break of that level that isn’t reclaim may usher in lower prices. Potentially 3790 to 3800.

SPY

H4 chart above as SPY is retracing about half of Monday’s move in the pre-market. If we run higher off the lower open, I’m watching that 388.50 to 390/391 zone. 

That’s yesterday’s high for a potential look-above-and-fail as well as a key pivot zone. If the SPY can clear this area, $400 is not an impossibility ahead of the Fed. 

On the downside, $382 is vital. 

Nasdaq — NQ

The NQ has pretty clear-cut levels. 

On the upside, 12,075 is key. Above it puts 12,175 in play, followed by a potential push to 12,250. 

On the downside, 11,920 to 11,950 is notable. A break below this level (and where the NQ is trading now) and failure to get back above it, opens up the 11,800 area. 

Remember to go level to level, see is price “accepts” or “rejects” that area. 

Go-To Watchlist — Individual Stocks

*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.

Notes:

  1. UUP — Down to ¼ position as we hold for potentially higher prices. Raise stops to $28.40 to $28.50. Look for $30 on the last piece. 
  2. CHNG — Consider taking the last piece off at $25.75 to $26 or simply hold against a B/E or better stop and ride the trend higher. #Kudos

Relative strength leaders → 

Top:

  1. TAN
  2. ENPH
  3. FSLR
  4. LNG 
  5. TSLA
  • CAH
  • F
  • XLU
  • XLE
  • OXY
  • BMRN
  • PWR
  • CHNG
  • CELH
  • COST
  • UNH

Economic Calendar

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 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!
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!

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