The bulls are on their heels after a failed rotation.

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Our View

According to Goldman Sachs, the “pain trade” is now lower. Shorts have been covered, CTAs are 100% long globally, retail is euphoric again, yearly inflows are completed and liquidity is disappearing fast (on that last note, please take a second a study the MIM chart we include under the Recap, as it shows that the late-day flows have faded from the long side and have become much more neutral to bearish). 

Next week we get the all-important CPI report, which is now the most important econ report of the month. It’s also Opex week. 

Buckle up. Worst-case, CTAs sell $214 billion on a one-month horizon.

Our Lean

The ES is now giving back part of its early-year gains, something we have been expecting. On Globex, the ES traded down to ~4061. I have been trading the gaps fairly well, but this morning’s setup may not be quite as easy. 

The prior gaps have, by and large, been down into support or up into resistance amid what has been a fairly choppy tape. Because of the chop, the lack of follow-through or a meaningful trend has made trading the gaps a lot easier. 

Today’s gap is different though. It follows a near-120 point, three-day skid, and a 100+ point dip from yesterday’s late-morning high. 

Our Lean: Buy the open or the first pullback under the opening range using a tight stop. I have a very hard time selling this type of weakness after this big of a decline. On the flip side, sell any 40 to 60-point rallies. 

Our Lean, Lean: Today is Fry-day and the option lotto call buyers may show up later in the day. The PitBull has a rule that the market makes a tradeable low on late Thursday or Friday the week before Opex. Well, the low wasn’t yesterday, so it could set up for a lotto-long today (more below on SPY and SPX). 

MiM and Daily Recap

The ES rallied up to 4170.25 and opened Thursday’s regular session at 4165.25. After the open, the ES sold off down to 4135.25 at 11:07 and this decline was extremely choppy. After a small push up to the 4144 level, the ES plunged down to a new low at 4131.50 at 11:25. For the next ~20 minutes the ES was locked in a 5-point back-and-fill pattern, then rallied up to 4142 and got bombed by several sell programs that pushed the future all the way down to 4113.50 at 12:51.

Ultimately, the ES traded up to the 4125.50 level and then made a new low at 4078.25  at 3:30 for the low of the day. From there, it rallied straight up into the 3:50 imbalance reading, which showed $550 million for sale. The ES traded 4092 on the 4:00 close and settled at 4098 on the 5:00 futures close, down 38.75 points or 0.94%.

Technical Edge

  • NYSE Breadth: 26% Upside Volume
  • Advance/Decline: 26% Advance 
  • VIX: ~$22

Yesterday we wrote: 

“We have a gap-up today, but I am just a tad skeptical, as many tech names looked quite tired yesterday (NVDA, MSFT, GOOGL, etc.) Gap-ups above the highs and failure to hold them creates a bit of a “risk-off” trade for active traders.”

That proved to be prudent, as it was a tough tape to navigate. That’s as the S&P had the potential to give us an inside-daily-up rotation and clear a major resistance hurdle (on the ES) and charge higher. It had the potential to be quite bullish in all honesty. 

Now under pressure again, we come into Friday morning with a much different tone than Thursday morning. 

S&P 500 — ES 

The ES closed below the 10-day ema — active support — for the first time since Jan. 19 or about 15 sessions. Under pressure again this morning, it’s hitting the 21-day moving average, which was last support on…wait for it…Jan. 19

However, that also came with a combo test of the 3920 level. 

If this level holds through Globex and into the open, look for a reclaim of Thursday’s low (~4078). A successful reclaim could put 4100 back in play. 

On the downside, let’s see if buyers step in on a break and regain of the Globex low of 4061. Ultimately, bulls will want to hold the 4050 area. I have a hard time thinking last week’s low is in play near 4007 unless the sellers really step in. 

SPY

A quick look at yesterday’s action. Look at the way the SPY opened just below Wednesday’s high of $414.53. It tagged it and gave us the “look above and fail,” clearing the high by 4 cents — “looking above” — and reversing lower — “failing.” 

Buyers did step in, but it was ultimately a “sell the rallies” session. 

Now for today. 

Set to open the session near the 200-sma on the 30-min chart, let’s see if buyers can step in here and at least fill the a.m. gap.

Regardless of how the morning gap shapes up, I am keeping a very close eye on the $403 to $404 area. There we find the 21-day moving average and the 78.6% retracement of last week’s range. 

At the very least, I would expect a bounce out of this zone if we see it. Similarly, this location could be a good area to consider a lotto call idea — again, if we see it

Down big in just a couple of days amid what is still a bullish trend on a Friday and the R/R would make sense. On the SPX, it would look like this: 

The key area here would be ~4050. Depending on the time of day, it would likely have me looking at the 4075 to 4100 calls. 

NVDA


Gap fill + 50% retrace yesterday. Let’s see if NVDA finds support near $210 and the 10-day ema. 

AMD

A lot of RS here lately and I don’t want to be the last one on the train. However, shares are set to open near the 10-day ema after a little post-EPS bull-flag pattern. 

See if buyers step in here and maybe consider a 1/2-sized position in some $85 calls. 

If the setup fails, $76 to $79 is in play and I could really see that happening. So if playing, either keep the position small or wait for the better R/R setup. 

Open Positions 

  • Bold are the trades with recent updates. 
  • Italics show means the trade is closed.
  • Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be B/E or better stops.)
  1. None at this time!

Go-To Watchlist

*Feel free to build your own trades off these relative strength leaders*

Relative strength leaders →

  1. AQUA
  2. AEHR
  3. GE
  4. NVDA, TSLA, SHOP
  • SBUX
  • MELI 
  • NFLX
  • WYNN, LVS
  • AXP
  • BA & Airlines — AAL, DAL, UAL
  • TJX, ULTA, NKE
  • CAT
  • HCCI
  • XLE — XOM, CVX, COP, BP, EOG, PXD — (Weekly Charts)

Economic Calendar

As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
Disclaimer: Charts and analysis 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!

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