Our View
I’m a little mixed up. I think the ES has rallied far enough to keep going down, but April is the best month of the year for the Dow and it’s the 3rd best month for the S&P.
I called it right in Friday’s Lean, but I didn’t trade my call. Instead, I let the ES fall a little and started trying to buy it. Why did I do that? I don’t know. When the ES is 20 handles higher on Jobs “Fryday,” it’s a great sale, but when they drop and only open 3 higher and fall 10 points, I did what every rookie does: I didn’t short it as I should have, so I started buying it.
Instead of just telling myself, “Ok you missed it. Don’t worry, another trade will come along,” I pressed and pressed. I’m sure I’m not the only one. I was fortunate enough to trade to close correctly on that big end-of-day rally, but if you want to know some of the inner workings of a trader who’s been in the game for more than 40 years, then this passage was for you. We’re all liable to screw up, even when we have it mapped correctly ahead of time.
Our Lean
I can’t rule out some further weakness, but there is a tendency for the mutual funds and ETFs to buy on the first few trading days of the month. Like Friday, I still think there will be a buy on the close today as part of Thursday’s mammoth $10 billion MIM sale is shifted back into stocks.
Just look at what happened on Friday. The ES labors all day, acts weak late, and then rallies 25 handles in 10 minutes going into the close. It was a great example of my three parts to the trading day: What happens on Globex, what happens on the open and what happens in the final hour. Try breaking the day into chunks and see if that helps your mental trading state.
Our Lean: If the ES is down on the open I may buy the dips, but most of the session lows are now showing up after 10:30 to 11:30 — which has not been the trend as of late. If the ES gaps up, I would look to sell the rallies and buy the pullbacks, but ideally, today’s action should be a two-way trade.
Daily Recap
The ES opened Friday’s session at 4543.50, 12 handles off the Globex high as investors digested the non-farm payrolls report released one hour earlier. The market began to sell off right out of the gate, falling 25 handles to the early low of 4518 around 10:30.
After a modest 16-point bounce back to the 4535 area, the sellers stepped in again and drove the ES down to the 4505 area where it found support around noon. For about an hour, it chopped between 4505 an 4515, undercut the low on a drop to 4501.25, then reversed and rallied 37 points into the afternoon.
The VIX may be down, but that doesn’t mean the bigger ranges aren’t still in play. The ES fell 25 points from the 2:30 high, bottoming at ~4514 (prior resistance earlier in the day) at 3:40, then soared higher on the 3:50 imbalance reading, which revealed $2.9 billion to buy. The ES rallied 28 points from the 3:44 low to the 3:57 high.
It closed at 4538 at 4:00 and settled at 4538.50 on the 5:00 futures close, up 8.50 points or 0.2% on the day.
- Total Range: 54.2 points
- H: 4555.50
- L: 4501.25
Technical Edge
- NYSE Breadth: 71.3% Upside Volume
- NASDAQ Breadth: 45.7% Upside Volume
Breadth is not the end-all, be-all indicator in trading — no indicator or measure is. But it can often hold some clues.
Shortly after noon, the S&P 500 — be it the ES, SPY, or SPX — was down about 80 basis points and probing the low of day. At that time, I noted that breadth was still reading 60% upside volume even though the market was near the low.
Now that doesn’t mean we were guaranteed to rally necessarily, but it’s one factor that had me long — granted my cost basis was almost 15 handles higher on the ES, at 4514 — and looking for some kind of push higher.
Simply put, the breadth reading was telling me there was demand below the surface; not waves of sellers hitting every rally. If it were 70%+ downside volume at that point, I think the action would have gotten worse throughout the session, not better.
Game Plan
I want to make three points coming into today’s session.
- I don’t like to come into Monday morning with a firm bias, because it’s the first trading day of the week and I like to be flexible with my positioning.
- We’re finally seeing some solid setups in individual stocks. Now that volatility has come down, we aren’t being as limited to the indices as we were in Q1.
- It’s still very tough to decipher if we’re in a “dead-cat bounce” and rolling over, or at the start of a new and strong uptrend.
For now, the bulls have control. But that could change at any moment.
S&P 500 & ES
- Feel free to extrapolate this layout to the SPY
On Thursday and Friday, we were looking for the S&P 500 to cough up about 100 points and find support in the 10-day to 200-day moving average area. It gave us 95 points before it found its footing.
For now, bulls remain in control of the short-term trend. On the upside, I’m watching the 61.8% retracement at ~4552. Above that puts 4595 back in play, followed by last week’s high near 4637.
Upside levels:
- 4550 to 4552
- 4595 to 4600
- 4637
On the downside, I’m really watching Friday’s low and last week’s low near 4507. A break of that level that’s not reclaimed could put the 200-day and the 50% retracement in play between 4467 and 4485. Below that and we have the 50-day and 21-day currently near 4412.
Downside levels:
- 4507
- 4467 to 4485
- 4412
ES
Very similar setup in the ES. Mainly, we want to see if bulls can hold short-term support and push higher from here. Otherwise, the risk is a weekly-down rotation below short-term support.
A daily-up rotation over 4555.50 could open the door to 4585. Above that puts 4625 in play.
On the downside, a move below 4500 puts the 200-day in play, followed by 4455, then 4410.
AAPL
AAPL was a great trade on Friday as it held $172 support and the 10-day. Let’s look for a daily-up rotation today over $174.90 to $175.
If it holds, we could see a quick push back to the $178+ area for a trim.
STLD
Building in the mid-$80s with several inside days. Look for a possible rotation over $86.35, putting the upper-$80s in play, then $90+.
BRK.B
Nice reset. Daily-up over ~$354.60 could put $360 back in play for trim.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
- Watching XLB closely for dips! Leading stocks in materials include FCX, NEM, DOW, CTVA, NUE
- TU — trim at least ⅓ to ½ here. Look for $26.90 to $27 for another ⅓ to leave runners or another p½ to exit completely.
- AVGO — Daily-up over $634.60 will have my attention
- PANW — Next trim spot is $645 to $650
- DLTR — $165 is the upside target.
- MCK — looking for test of 10-day ema or a weekly-up rotation over $309.50.
- MKC — Finally got the breakout over $100. Trim spot No. 1 between $103 and $104.
- COST
- VRTX
- BMY
- CCK
- Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
- ABBV
- BROS
- ADM, MOS
- PANW
- AR
Economic Outlook
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