This was a much-needed three-day weekend unlike any other. The ES has fallen 5%+ in back-to-back weeks now and has fallen in 10 of the last 11 weeks. It has not been a good stretch. As the new week begins, traders are wondering when the stock market will stop going down. I am still looking for a bottom in September or October.
Many want to blame the stock market selloff on the Fed or Russia. However, according to research from Vickie Chang, a global markets strategist at Goldman Sachs Group, the Fed has often had a hand in market turnarounds, too.
Going back to 1950, the S&P 500 has sold off at least 15% on 17 occasions. On 11 of those 17 occasions, the stock market managed to bottom out only around the time the Fed shifted toward loosening monetary policy again.
Right now this is a non-stop pain game. As of Friday’s close, the ES has fallen 23% in the first 6 months of 2022, the worst start to a year since 1932. We all know the Fed just started raising rates, while inflation is running at a 40-year high and the most current batch of data showing factory orders, retail sales, consumer credit, and home building all falling, the odds of the stock market bottom is not very likely.
According to FactSet, a total of 417 S&P 500 companies mentioned inflation on their earnings calls for the first quarter, the highest number going back to 2010. While corporate earnings are strong now, analysts expect they will come under pressure in the second half of the year.
Now that the June options expiration is out of the way, the next big event is the end of June rebalance.
As for today, you have two options:
You can buy the early weakness and sell the larger rallies or
Just be patient and sell the rallies. Remember, the long-term trend remains lower and I see new lows eventually on the way for the S&P.
Friday was an odd, choppy session for the S&P. The ES did just 2.08 million contracts in volume, which was the lowest volume all week and quite low for what is normally a high-volume session when it’s quad-witch. Look at some of these ranges:
In any regard, the ES had a trading range of just 75 points — its lowest range since June 8th — and it gained just 4.5 points on the day.
Daily Range: 74.50 points
L: 3639 (new 2022 low)
NYSE Breadth: 58% Upside Volume
NASDAQ Breadth: 77% Upside Volume
Stay nimble and remember that not every session is suitable for trading. Our No. 1 goal as traders — particularly in this environment — is to protect our capital!
Remember this mantra and say it out loud: No edge = No trade.
Game Plan — S&P 500 (ES and SPY)
Another day, another gap-up.
S&P 500 — ES
For all intents and purposes, we have an inside-doji-and-up setup playing out right now. However, coming into the session +60 does not do traders much of a favor — if anything, it leaves them susceptible to a fade.
I see two keys to today’s session: Friday’s high and the 3725 to 3735 zone.
If we can’t stay above Friday’s high (at ~3713), then 3700 remains vulnerable. Below 3700 and we can see the 3670s.
Above 3713 leaves us in a daily-up state and keeps the 3625 to 3635 zone in play, which was support for most of last week. Reclaiming prior support is paramount for the bulls. Turning it into resistance is paramount for the bears.
If the market clears this battleground spot, it puts 3750 in play — the Globex high. Above 3750 and 3800 to 3830 is in play, along with the 10-day moving average.
S&P 500 — SPY
We threaded the needle on Friday with the SPY, saying that it’s likely we’ll lose the gap-up gains and could eventually see the $362 to $362.50 area.
The SPY hit $362.17, bounced and gave us a doji candle on the close, and is now going daily-up in the pre-market.
On the upside, keep an eye on the $372.12 area. We are about $1 away from that mark in the pre-market, so any sort of opening surge could send us to this area. If we fill the gap, look at it as a potential “Job Well Done” for the market and see if this acts as a pivot area to the downside.
If the SPY can gain traction over $372 this week, $380 could be in play. Otherwise, a gap-fill and fade is very possible.
Well, we finally got it. I don’t write about Bitcoin all that much, but now that we have a test of the prior all-time high and the 200-week moving average, it may be worth looking at.
If anything, keep Bitcoin prices in mind as a potential proxy for growth stocks/ARKK, etc. If it holds the recent low near $17,500, I think we could see a decent bounce. Back over the 200-week moving average puts $27K to $30K in play.
Below $17.5K and the pain can continue. Simple as that.
ARKK was looking pretty good until being completely destroyed a few sessions ago. Oddly though, it has not made new lows.
You don’t have to trade ARKK, but use it as a proxy on growth stocks. I want to see if it can clear $40 and the 10-day on this gap-up.
Thought out loud: With last week’s action in energy and no new low in tech, it makes me wonder if we’re going to see a rotation back into tech and out of energy.
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.
DXY / UUP — A little complex w/ the position, because we have some runners from the first trade and a great bounce from the second trade. On Friday, we trimmed $28+
On the upside, I’m still looking for $28.20+ to trim more.
$28.50 to $28.65 is the next meaningful upside target.
On the downside, I’m raising my risk to a break-even stop.
XOM — did not hold $90. A low-risk trade that failed.
MCK — Needs to hold $299. $310 to $312 is a reasonable first trim spot.
Relative strength leaders (List is cleaned up and shorter!) →
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!