Globex
High 4474.75
Low 4431.00
Volume 350,00
Our View
The markets can run from their problems but not hide. Under the surface, selling has been very consistent over the last two weeks and you could clearly see it on yesterday’s MiM, with $3.6 billion for sale.
Geopolitical tensions, high inflation, and the Federal Reserve preparing to raise interest rates have roiled the stock and bond markets all year and I personally don’t see this ending anytime soon. Today is the January options expiration and while it may affect the price action, it’s not going to overshadow the Vladimir Putin show.
Our Lean
If the Russians attack Ukraine, the ES will initially tank. But you have to consider all the selling that has led up to the attack — everyone is short!
Ed Seykota from the Market Wizards book and who used my S&P desk once told me, “You’re supposed to trade up to the event, not the event.” I have always had a lot of respect for Ed, but that rule was made long before the algos took over.
I also want to apologize, in yesterday’s lean I said buy the lower open and sell the rallies. I was going to go in and change it to just “sell the rallies,” but I try my best not to change it because it comes back to bite me in the ass when I do.
The Russian situation is very fluid. A headline hit at 8:35 pm that Russia responded to a US offer for meeting with Sec of State Antony Blinken. Russia proposed dates for late next week and the ES from 4371 up to 4404, a 33-handle move in 25 minutes.
I am short from 4413 and was up 45 points and now I am up 10. This is a brutal game right now that takes no prisoners.
Today is Friday and it’s also the February options expiration. I don’t think the meeting with Blinken and Russia’s Lavrov late next week will yield any major concessions and this leaves a lot of time for shenanigans. That said, when there is an abundance of shorts, it’s a Friday — and an options expiration Friday at that — and there is some potential for good news, you just can not rule out a squeeze.
I thought the ES would trade down to 4350 on Globex last night and if it broke 4320, then 4300 could be in play. However, that’s 100 points lower from here. Our lean, I doubt anyone wants to go home long over the holiday weekend, but the other side of this is all the buy-stops lined up above 4400.
4395 is last week’s low. So if the ES can keep its head above water — aka get above and stay above this level — then those buy-stops could be in play, particularly on a move above the Globex high at 4411.50. That’s how we could see 4440 to 4450.
Daily Recap
Already under pressure from the Globex highs, the ES opened at 4436 and fell like a rock, bottoming just above 4400 about an hour into the session. It bounced to ~4425 an hour later, then the sellers stepped in and drove it lower all day.
The ES traded 4367 late in the day after the 3:50 cash imbalance came out showing $3.6 billion for sale. The ES bounced and traded 4375 at the 4:00 cash close and settled at 4374.75 on the 5:00 close, down 90 points or about 2% on the day.
In the end, the shelling in East Ukraine picked up as Secretary of State Antony Blinken warned of a looming Russian offensive against Ukraine and proposed a last-minute diplomatic meeting with his Russian counterpart as Moscow says it might resort to its own measures if Washington doesn’t offer binding security guarantees.
The constant headlines were clearly pushing the markets (and the algos) all over the place. In terms of the ES’s overall tone, it was weak from the get-go. In terms of the ES’s overall trade, volume was in line with the last few days at 1.58 million contracts traded.
Total Range: 107.50 points
- H: 4474.75
- L:4367.25
- C: ~4375
- V: 1.58 million
Technical Edge
- NYSE Breadth: 76.3% Downside Volume
- NASDAQ Breadth: 81.6% Downside Volume (!)
There are so many bad moves taking place below the surface. I continue to see the high-growth stock names — essentially the ARKK holdings — getting buried. I can’t help but think it’s the irrational exuberance being punished.
To some extent, I do believe it’s overdone. The PYPL, TWLO, and ROKU’s of the world are actually good companies. However, I also know it’s a bear market and there’s no telling where the bottom is. My biggest fear (for this group anyhow) is, how will they react if and when the larger indices eventually roll over?
Before I go further, just a note to all the readers here: Enjoy yourself this long weekend. If you’ve made a killing, enjoy that feeling and remember to be humble. If you’ve struggled and lost, take it easy on yourself, regroup and focus on the positives. This is not an easy business.
Game Plan
For now, the sellers remain in control.
Earlier this month, we talked about the possibility that S&P was setting up an “ABC” correction and we were simply chopping around in the “B leg” portion of that dip.
In that case, it could put last month’s low back on the table.
We could make a case for the long side too, but the way I see it, the default trade sits with the bears — selling the rallies — and the bulls need to take back control before we shift into a different outlook (ie buying the dips).
Let’s show it via the S&P chart below.
S&P 500 — SPY
- Feel free to extrapolate this layout to the ES.
Notice how the SPY came down super hard, found its footing in the high $420s, and bounced. However, the S&P couldn’t push through the 61.8% retracement, topping out here in back-to-back weeks. That goes for the ES too.
Last week, the $446 area was support. This week, it was resistance (and it’s also the 50% retracement of the recent range).
On their own, these nuances — especially for a group conditioned to “screw it and buy the dip” — are nothing to think twice about. But taken together, they are telling a story.
- A hard fall that bounces to the 61.8% retracement and fails…bearish.
- A dip to $446 support, which turns to resistance…bearish.
- Failure to get back above the 21-day moving average for more than two sessions…bearish.
- Breaking below last week’s low…bearish.
Currently, the SPY is up about 50 basis points in the premarket. Could it gap-and-go to the upside? Yes. But it could also be a bounce to sell into.
The Trade: My gut says that if we gap up like this, it’s an opportunity to sell some and at least erase some or all of the morning gains. If the breadth is strong, maybe it holds up, but the ball sits in the bears’ court right now.
The upside levels are:
- $440.90 — the prior H4 high
- ~$443
- $444.50 — 200-day sma
Downside levels of interest:
- $436.32 — Thursday’s low (daily down trigger)
- $435.34 — this week’s low
- $432 — the start of last month’s support zone ($428 to $432)
Nasdaq — QQQ
- Feel free to extrapolate this layout to the NQ.
What I meant in the Game Plan by “shorts have control, longs can make a case is this,” is:
While the sellers have been in control (ie the observations in the SPY), you could argue that the QQQ is making a higher low and is now giving us a falling wedge/flag consolidation at the moment.
I try to be as objective as possible and am a bull at heart (the long-term statistics favor the long side). But the long case is much more of a “prove it” situation, whereas the short case has been playing out.
Upside Levels:
- $349.28 — Prior H4 High
- $350.32 — Q4 High
- $352.75 to $353.50
Downside Levels:
- $343.89 — this week’s low
- $341 — prior support
Individual Stocks & Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
I don’t want to disappoint, but let’s take a pass on individual stocks today. We’re going into a three-day weekend with a VIX at $28 and quite frankly, did quite well with our trades this week (ABBV paid, ZTS paid, TD paid).
It’s not worth screwing up a decent week ahead of a long weekend.
For the most part, we didn’t have a lot of individual setups this week, and even when we did, not many actually triggered. That’s just the type of market we’re in now, unfortunately.
Once 9:30 comes around, I may look to build trades off the Go-To watch list, which is its intention of being included here.
Go-To Watch List:
- TD — Inside & Up day over $84.83. B/E stop from here.
- ABBV — Down to ⅓ of position. Stop raised to $142.
- TU — Looking for a test of the rising 10-day and $24.75 area.
- MAR — watch for undercut of $177.70 area and a possible bounce. 10-ema on the H4 & a relative strength monster. Otherwise, 10-day could be in play like Hyatt.
- COST — Daily-up could put the 50-day in play.
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- BROS
- TSN
- DE
- WFC, MET — MS 2x daily up over $104.50
- Energy — HAL, OXY, SLB, etc.
- BRK.B
- H and MAR — Airlines looking better too
- PM
- COOP
- TU
- MAT
- V & MA — Resetting now. See if a bid comes in soon
- MKC
- TECK
- UPST — one of the few growth stocks actually working
Economic Outlook
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