This is a much-needed three-day weekend unlike any other. So far the ES has fallen 5%+ in back-to-back weeks — and that even includes Friday morning’s ~1% rally. We’ll see how it finishes today and whether that observation holds true.
Making matters even more difficult is today’s quad-witching expiration. Volumes will be high and the water can often be choppy. There may also be a lot of unwinds going on as traders roll, exercise, or exit their positions.
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! No edge = No trade.
I want to say this again: we have never seen the index markets move like they are today.
Remember, I was on the trading floor for more than three decades and I have been part of every major market move since 1985 and lost $10 million in the 2010 Flash Crash. I did all the UBS S&P program trading and ran the largest S&P index desk on the floor of the CME. I’ve taken every type of order, from currencies to 1,000 lot bond scales and millions of options.
So I’d like to think it means something when I say these ranges are insane.
I said months ago that I thought things were disjointed and that something big was going to happen. Since then the S&P has fallen over 700 points. I want to point out that being right about this doesn’t make me happy or feel smart. We all have to manage our own risk — it’s how the game is played — but this decline had a different feel to it than say the credit crisis or the 2000 tech bubble.
Where is this going? Into a recession, that’s where.
Look at these ranges.
Last Thursday: High of 4145.75, low of 4016. (130-pt range)
Last Friday: 4030.50, 3896.50. (135 points)
Monday: 3878.50, 3735.25. (143 points)
Tuesday: 3808, 3708. (100 points)
Wednesday: 3843.75, 3723. (120 points)
Thursday: 3833, 3642. (191 points)
That’s a 504-point move from last Thursday’s high to this Thursday’s low!
I do not think the low is in. If the ES gaps higher, my lean would be to sell the open or the first rally above the gap up.
There is over $3 billion in options expiring today, but if the ES starts going down late in the day it could get real bad. Not saying there won’t be two-way flow today, but in the long run just keep selling the rallies for now. The Fed has told us over and over they are going to continue to raise rates and if that happens while gas and oil go up over the next two months, we’re in trouble.
The ES opened lower at 3707.50, down ~83 points from Wednesday’s 4 pm close. The ES tried to carve out a low at 3676 in the opening hour, but after 10:30, it broke the low and traded down to 3658.75, 53 points off the high.
From there, the market rallied ~31 points to a high of 3689.50 at 11:15, then settled into a 25-point trading range for several hours. At 1:15, the ES made a slightly higher high at 3691, before slumping 49 handles down to the session low (and the 2022 low) of 3642 at 2:45.
The ES ended the day on a 37-point rally, closing the 4 pm session at 3678.75. However, it ended lower by 122 points or 3.2% on the day. In the end, the bears unwound any post-Fed optimism. The ES’s overall tone was overwhelmingly bearish, although the ranges were orderly. In terms of the ES’s overall trade, eclipsed 2 million contracts for the fourth straight session, at 2.41 million.
Daily Range: 191.25 points
NYSE Breadth: 93% Downside Volume (!!)
NASDAQ Breadth: 75% Downside Volume
You may notice that the VIX has remained stubbornly high, but hasn’t really rallied despite this week’s fall in the stock market. That’s given the relatively controlled state of the pullback.
Say what you will about the market, but this decline has been orderly. That said, it’s been painful.
The S&P is down ~13% in the last three weeks and unless it rallies 5.5% today, it will close lower for the third week in a row and the 10th time in the last 11 weeks.
Game Plan — S&P 500 (ES and SPY)
We are gapping higher on the day. Keep an eye on those closing prints. I would not be surprised if the market wiped out the early gains first, then decided on which direction it wanted to go.
S&P 500 — ES Daily & Weekly
Above is the daily chart, below is the weekly chart for the ES.
One thing I have said and will continue to say is that the levels have been pretty clearly laid out. Despite it not being an easy environment, the clean breaks and rejections have helped.
On the upside, the ES needs to clear 3710. If it can, the 3742 to 3766 range is in play, followed by 3800 to 3810.
On the downside, a break of the Globex low near 3668 puts Thursday’s low in play at 3642, followed by ~3625.
As for the weekly view, of course, some sort of bounce is possible. However, 3875 to 3900 (and there is a gap-fill level in there at 3896) is resistance until proven otherwise.
On the downside, a test of the 200-week moving average and 3500 level can’t be ruled out in my opinion.
S&P 500 — SPY
On the upside, bulls need to clear $370.94 — yesterday’s high. If the SPY can do that, the $373 levels looms large, followed by ~$380, which was the prior 2022 low in May and clear resistance this week.
On the downside, keep an eye on $366.65, which is yesterday’s close. If we lose the gap-up gains, this level is in play, with yesterday’s low being the next level to watch at ~$364.
Below that could put $362 to $362.50 in play.
Nasdaq — NQ
At this point, I almost hope the Nasdaq doesn’t rally much, because it seems inevitable we are going to test the 200-week moving average here — let’s just get it over with, right?
It helps that this measure comes into play near a major breakout/prior support zone around 10,800 to 11,100. To tag the 200-week week would mean a decline of just 2% from this week’s low — that seems like nothing these days.
This is a “zoomed out” look, but on a bounce, watch the 11,500 level. Above that puts the declining 10-day in play, along with the 11,700 to 11,750 zone.
Dow — DIA
We mostly talk about the S&P and the Nasdaq, but I thought the Dow was a good one to look at now as it comes into its pre-Covid highs, prior breakout area and the 200-week moving average.
Thought out loud: Do we eventually get a slight overshoot on the downside and fill that gap near $285?
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 — This one is a little more dynamic. I still have the ¼ position in UUP from the first trade and then added on yesterday’s dip. I will likely trim if we see $28 to $28.10 (or close to it) today. At $28.20+ I will likely get back down to a ½ position.
On the downside, I want to hold Thursday’s low.
XOM — Needs to hold $90 and I want to see it go daily-up over $93.13. Conservative bulls can trim at $95 and more aggressive bulls can aim for $96 to $97.
MCK — Needs to hold $299. $310 to $312 is a reasonable first trim spot.
AR — did not hold $36.80 on an intraday basis. Watching to see if we can get a rotation back up through $36.70 to $40. No rush to be stubborn though.
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!