If so, stocks can climb.
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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 were right about the 3640 level, but we were a little slanted to the downside until I saw the early price action. My bad! I should have been talking about FRY-day and how short people were. However, the ES was breaking support and under pressure before a WSJ piece hit the wire saying the Fed may be contemplating a slowdown on the rate hikes after next week.
That flipped the script to bullish pretty quickly (and shortly after the OP was out). Bret noted that “Perhaps we can get an opening bounce out of this zone” referring to a support zone on the S&P. Well it did, but it came during the hour before the open instead of in the regular-hours session.
Below are my posts in the MrTopStep chat after the open, hopefully highlighting how a pivot can help in your approach to the day:
Dboy :(9:23:32 AM) : Flip a coin for the open, but with everyone short and the nearby stops on the upside could be a quick rip
Dboy :(9:31:47 AM) : buy imbalance showing up
Dboy :(9:33:57 AM) : short inventory with ES down hard, on a FRYday Oct expo stop runs are going to be big
Dboy :(9:38:19 AM) : lots of buy stops above all the way up to 3730
Dboy :(9:43:28 AM) : paid 3663.50 on 1 es
Dboy :(9:43:33 AM) : 10 pt stp
Dboy :(9:44:19 AM) : offering 1 at 93.50
Dboy :(9:45:05 AM) : FRYDAY
Dboy :(9:45:16 AM) : upside stops
Dboy :(9:45:47 AM) : the algos know everyone is off base
Dboy :(9:45:49 AM) : filled at 3693.50
Dboy :(9:45:57 AM) : that was fast
Dboy :(10:03:10 AM) : the algos know everyone short and they run the larger nearby stops
Dboy :(10:03:21 AM) : seen this hundred of time
Dboy :(10:03:52 AM) : on this day if the ES was down Raj would buy futures every time
Dboy :(10:04:22 AM) : he would take short risk off and if the close firm he would be buying ES late in the day
Our Lean — Danny’s Take
Earnings will dominate the tape this week, before next week (when we get the Fed’s rate-hike decision and the monthly jobs report).
As we all know when the ES rallies hard it tends to pull back. I am still long and think there is a possibility we see higher prices. Everyone seems to be bullish now and is looking for 3900, 4000 — and I even hear 4300. While I think the markets can go up, I’m a cautious bull not looking for it to overshoot on the upside.
Rates were so low for 14 years and now the Fed just jacked rates higher with massive 75 basis point hikes while we were still trying to let the economy regain its footing after Covid. They will likely over-tighten after being behind the 8-ball on inflation earlier this year.
Like a bad boat captain, they are oversteering. Hopefully, we don’t hit the dock, but now all models suggest a recession within the next 12 months.
Levels are below, but ES needs to clear 3800 (then 3820) on the upside. On the downside, the bulls want it to hold the 3770 to 3775 zone.
Daily Recap
The ES traded 3671.50 on Friday’s regular session open, dipped in the opening minutes, and made its low for the day. I’m not going to do a blow-by-blow of all the rips and dips, as the chart above lays it out pretty well and the sheer amount of points the ES moved in the first 90 minutes. After the initial dip, the ES ripped higher by 72 points, faded almost 50 points, and bottomed at 3678 around 11 am ET.
That low set up the push to new highs at 3732.75 at 12:04, up 55 points, sold back down to the 3713 level, and traded up to ‘another’ new high at 3741 at 1:05 and then up to 3756.75 at 2:12. After pulling back down to the 3742 area at 2:46, the ES rallied up to 3769.50 at 3:45 and traded 3766 as the 3:50 cash imbalance showed $1.1 billion to buy, dropped back down to the 3760 area and traded 3763.50 on the 4:00 cash close. After 4:00, the ES rallied a bit and traded 3772 on the 5:00 futures close, up 96.75 points or +2.63% on the day.
In the end, everything came down to one thing, the ES held the 50% retracement at the 3640 level. In terms of the ES’s overall tone, it was all buy stops and buy programs. In terms of the ES’s overall trade, volume was steady all day at 2.59 million contracts traded.
Technical Edge
- NYSE Breadth: 79% Upside Volume
- Advance/Decline: 71% Advance
- VIX: ~$30
Bonds might have given us a low on Friday, especially if they can rotate higher today. If we can pair that with weakness in the dollar, we have a recipe for a potentially sustained rally in stocks.
The ES tagged a very key area overnight, faded, and regained some bullish momentum in Globex. Let’s see if that plays out again in the regular session or if the bulls can hold more of those gains.
Again (and like a broken record) it will likely depend on how bonds and the dollar trade.
S&P 500 — ES
On Friday, the ES rocketed off 3640 (the June low, as well as the 50% retrace of the recent rally) and climbed into the week’s high.
This morning, the ES is struggling with 3800, the high from early this month. If we can clear this zone, not only will the ES go weekly-up but it will clear notable short-term resistance. That opens the door to the 50-day moving average and the 3900 area (call it 3385 to 3915).
On the downside, keep an eye on 3964. Below that level could put the Globex low in play at ~3736. Bulls need to see the ES hold the 10-day and 21-day moving averages.
S&P 500 — SPY
SPY held support but didn’t get a test of it during the regular-hours session on Friday. It’s still contending with the $375 to $378 zone.
If it can clear this area, it opens the door up toward $390.
If it can’t clear this zone, it would be great to see the SPY hold the $372 zone. Below that puts the three-day low in play, in the mid- to low-$360s.
TLT
This action is horrendous. I’ve never seen bonds trade so badly.
Up marginally in the pre-market, bulls want to see the TLT and /ZB gain momentum on the day. For the TLT, that means clearing $93.93. If it can do that, it opens the door to the declining 10-day moving average.
We have a really nice gap-down doji day from Friday. If we can mark that as the low, it could pave the way for a nice upside trade (and help stocks in the process).
At some point, we need to bounce. The TLT is down in 12 of the last 13 weeks and the /ZB is down in 12 straight weeks.
UUP
Pretty bearish action on Friday, with a bearish engulfing candle on the daily (left chart).
On the weekly and the daily, one can see where support may come into play in the $29.50 to $29.75 region. If we do get a pullback that far, it likely paves the way for a rally in equities.
If it finds support in this zone, that could end the rally in stocks.
QQQ
The QQQ is pretty straightforward. Over $277.21 gives us a weekly-up rotation and puts $280 to $284 in play.
Above that opens the door to $290 and the 50-day.
Below $277.21 and the $266 to $269 region remains in play. #KISS
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:
- LNG — nearing the breakout near $150
- MCK — Stopped earlier but still holding the breakout near $340
- CAH
- LPLA
- CCRN
- FSLR
- REGN
- ALB
- VRTX
- CYTK
Economic Calendar
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