Plus, a potential trade-in MSFT.
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Our View
Well, things picked right up where they left off in 2022 — sloppy, choppy and range bound. One thing for sure about the current price action is selling the big gap-ups. More broadly, the market continues to sell into strength, with each rally acting as a “last gasp” for longs to bail out of their positions.
Put simply, no rally has been able to last lately.
If you look at the ES daily chart, it was clearly rejected from the 3900 level but — and there is always a but — it’s still holding 3800. My question is, “for how long?”
By the way, be sure to read our Guest Post from earlier this morning. It’s written by one of my friends — Rob — of the Discovery Trading Group. It gives a very unique insight into rates and the potential path of the Federal Reserve. Even for index traders, this is important stuff.
Our Lean — Danny’s Take
Today is the ISM number and JOLTs data at 10 am ET. But more importantly, the Fed Minutes are on tap today at 2pm. You know what that means: Even without a rate decision (the next rate decision is scheduled for February, with odds currently pricing in a 25 bps increase), the algos always have a field day in the afternoon of Fed days.
Our Lean:
Do not be surprised when the algos run the stops on both sides after 2 pm.
More broadly speaking though, the ES is ‘stuck’ in a 3800-3900 chop-shop trading range for now. Until that resolves, it’s hard to be super bullish or super bearish. Keep playing the ranges until the range fails.
Keep an eye on ~3871. A push above this level opens the door back to the top of the range. Otherwise, 3855 (or lower) could be in play.
MiM and Daily Recap
The ES went for a wild ride on Globex Monday night, traded 3900 after the open, sold off down to 3842.75, rallied back up to 3906.75, and opened Tuesday’s 9:30 session at 3881.50. The ES sold off down to 3877.50 at 9:31, traded up to 3901.50 at 9:42, and then sold off 63.5 points down to 3838 at 10:20.
From there, it made a new low at 3737.25, then rallied up to 3860. I warned the MrTopStep forum about the 50- and 60-point rips and dips and so far that’s been the case. After the pop, the ES dropped all the way down to 3814.50 at 12:47 and then traded up to 3838.50 at 2:01 and then dropped down to 3917.25 at 2:33.
The ES traded 3845.50 as the 3:50 cash imbalance showed $924 million to buy, traded 3844.75 on the 4:00 cash close, and settled at 3843.25 on the 5:00 futures close, down 15 points or 0.39% on the day.
Yesterday was the one-year anniversary of the S&P 500 hitting its all-time 2022 closing high and a lot has changed since then. I think it’s important to remember the $6.1 billion in stock that was bought on Friday’s close, the last trading day of December. That money was there for one purpose: Marking up stocks at year-end.
After some rips back up to the 3901 level, the manufacturing PMI data hit, and both the ES and NQ immediately went offered as the same names that we marked up on Friday’s close were getting sold. In terms of the ES’s overall tone, all I can say is it doesn’t pay to sell the ES in the low 3800s and don’t buy the 3900s. In terms of the ES’s overall trade, volume was steady for the day after the New Year, total volume was 1.71 million contracts traded.
Technical Edge
- NYSE Breadth: 48% Upside Volume
- Advance/Decline: 60% Advance
- VIX: ~$23
Tesla got smoked yesterday and Apple is finally feeling the pressure. I am going to do a piece on AAPL later today or tomorrow, as there are some interesting reads into the company and its stock now that the share price is finally feeling the heat.
I don’t know where the low is or when it will come. What I do know is that AAPL and TSLA continue to make new 52-week lows and they account for almost $2.5 trillion in combined market caps.
Throw in the rest of FAANG and MSFT and it’s not hard to see why tech and the SPX are having so much trouble right now.
Be sure to check out the Open Positions tab below, as we were able to trim on yesterday’s push and now focus on new levels and risk control.
S&P 500 — ES
Danny put it pretty simply: The ES is trapped between 3900-3920 on the upside, while 3800 is support.
The S&P has fallen in four straight weeks and maybe this week acts as a reprieve. Either way, there’s not much to do until this range breaks.
Over 3920 puts the ES back above the 10-day, 21-day, and 50-day moving averages, as well as last week’s high and the key 3920 pivot. That opens the door for a potential push to 3985, then 4000.
On the downside, a break of 3800 puts 3761 in play.
SPY Is basically the same thing. $386-87 has been resistance, with the larger resistance level sitting up at $390. On the downside, $375-76 has been support. Ultimately, we need a range break.
QQQ
The QQQ is feeling pressure from AAPL and TSLA, as it tested its 10-ema for the first time in 12 sessions and was rejected.
Gapping up to start the day — you know I never really like gap-ups in a down tape — and bulls must be careful. Keep an eye on $267.40, which is last week’s high.
Active traders can use this level as their pivot, as a “look above and fail” of this mark could be a selling opportunity. A break of yesterday’s low below $262.13 could create more selling pressure if it’s not reversed.
Above $270 and the QQQ has room to run.
MSFT
The December low is $233.87 and comes into play right in the area where MSFT has support.
The stock is gapping just below this level this morning on a downgrade. If MSFT opens in the $233.50 area like it’s trading now and reclaims $233.87, traders could have a bullish reversal to work with, with a stop-loss just below today’s low.
If MSFT struggles to regain the $234 area and it turns to resistance, then use caution as the gap-fill down at $228.63 is in play.
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 we were/are looking for a push back up to $28.40+ but the going has been quite slow. That said, our stop never hit and we got our first price target yesterday: $28.15+
- Let’s go with a B/E stop.
- TLT — Like the UUP, finally got our first upside target of $102+. From here, let’s look for $103.25 to $103.50 and can use a B/E stop. More aggressive traders can go stick with a lower stop in the $98 to $99 range.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
- 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
- CAH
- LNG
- LMT, RTX, NOC
- MET — weekly
- GIS
- CI
- MCD — weekly
- FSLR — $140 is the 21-week sma and retest of prior resistance
- VRTX, UNH, MRK
- XLE — XOM, CVX, COP, BP, EOG, PXD (Weekly Charts)
Economic Calendar
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