Our View
I’m not sure why, but volume has been dropping the last few sessions. My guess is that retail is tired and the hedge funds have let up on the selling. Morgan Stanley said retail doesn’t make up much of the volume and I say BS to that. When the markets are thrashing, retail is trading.
However, the big accounts are not trading as much in that environment. I remember how my S&P desk volume would be low when the hedge funds and banks were not trading. I always kept a decent amount of retail business flowing through the desk because when the big accounts were not trading, the small accounts were.
Just over a week ago, ES volume was 3 million+ but that started dropping off last week with Monday’s ES volume dropping to 1.42 million, less than half what it was two weeks ago.
Our Lean
I am sticking with my call for the ES to start trading back down. It does not mean sell weakness, it means let the futures rally and look for good spots to sell. Treasury yields crept down from multi-year highs yesterday and if the bonds are weak again the Nasdaq will be too.
I know when I leave out “buy the early pullbacks,” there will be some good buying opportunities, but I find it hard to go from long to short and back and forth, so I’m sticking with selling the rips for now.
If the ES is weak and breaks the 4440 level, 4380 could be a downside target.
Daily Recap
The ES chopped up to a new daily high at 4513 at 10:39. After the high though, the ES got hit by several small sell programs that pushed the futures all the way down to 4473.25, about 40 points off the high of the day. The ES was able to trade back up to a new high of 4513.50 at 3:15, but then the sellers came back in force.
The ES traded 4463 at the session low, down more than 50 handles in less than 45 minutes, before bouncing 14 points and closing at 4476.75.
In the end, it was an extremely back-and-forth choppy trading session. In terms of the ES’s overall tone, the ES kept going “bid” late in the day while the NQ was going “offered.” In terms of the day’s overall trade, volume was on the low side at 1.42 million contracts traded.
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.
Technical Edge
- NYSE Breadth: 58.4% Upside Volume
- NASDAQ Breadth: 57.9% Downside Volume
Shortly after the open, we had 80% upside breadth on the Nasdaq and around 2:30, it made another push to the upside. However, the selling was simply too strong late in the day.
Ending around 57% to 58% upside volume is not surprising and indicates “CHOP,” which is exactly what yesterday was. I think the rally in small caps boasted these breadth numbers up, because the S&P and Nasdaq were not that impressive, while the Dow was roughly flat on the day.
Game Plan
I think this really becomes a question of when will the buyers come back to key names?
We’re seeing GOOGL down three straight days since popping to all-time highs on strong earnings. FB is down 30% in three sessions, AMD is off its earnings highs, while NVDA is down slightly after announcing its $40 billion ARM deal now off. AMZN has faded from its post-earnings highs for two straight days now.
Bulls need buyers in these big names and until they get it, we will likely struggle to generate lasting rallies. Put another way, we can’t rally significantly in FAANG+TNM (TSLA, NVDA, MSFT) are in the toilet — they will act as anchors to the rally.
On the upside, we do have a higher low to work in all of the major U.S. indices. Cryptocurrencies are trading incredibly well and even ARKK held up okay yesterday. We’re not waving the green flag necessarily, but there are positives to start building on.
S&P 500 — ES Futures
- Feel free to extrapolate these levels to the SPY, roughly speaking.
Inside day on Monday, as they continue to sell the close. The 21-day moving average remains resistance. With the Globex low coming into play near yesterday’s low, the 4462 level is acting as a line in the sand.
A break below that’s not quickly reclaimed likely puts the 200-day moving average in play, along with Friday’s low near 4440.
Below both measures and a failure to bounce could put last week’s low in play just below 4400.
On the upside, we have been writing about 4510 for a few days now. That’s the level to clear and hold.
Nasdaq — NQ Futures
- Feel free to extrapolate these levels to the QQQ, roughly speaking.
Another look at the Nasdaq shows that that’s where the selling has been. It’s struggling to hold Monday’s low now and if that continues after 9:30, it opens the door to 14,370.
Not once, but twice last week (on Monday and Friday), the NQ bounced from this level. It’s not only last week’s low, but also the Q4 low. In other words, it’s meaningful and failure to hold Monday’s low could put us there.
On the upside, we need to clear the declining 10-day moving average. Above it puts the 14,800 to 14,850 area on tap, which has been resistance for several days in a row.
Individual Stocks & Go-To Watchlist — AAPL, Bitcoin
AAPL
Inside day here, with AAPL sitting on the 10-day, 50-day and daily VWAP measure.
Looking for an undercut of Monday’s low and a rebound or preferably a 2x daily-up rotation. But we’ll need a real bid to come into tech to get it.
Bitcoin
I’m not a hater, just a trader, but I know a lot of people don’t like Bitcoin and its peers. I just look at it as a “risk-on” asset and if it has a bid, that bid may trickle into tech at some point.
I fully expected BTC to rollover near $39,000 as it was in a downtrend. It did at first, but then popped higher and broke the trend. Resistance near $45K to $46K isn’t too surprising, but now we must see how it trades.
Support from the 50-day would be encouraging, but mostly, BTC needs to hold the $40,000 area. If it can push through $45,750, then $50K and the 200-day could be in play next.
Go-To List —
Feel free to build your own trades off these relative strength leaders
- UPS — Watching daily and/or H4 10-ema and a potential retest of the B/O area near $220 for a buying opportunity. Great EPS reaction
- VRTX — strong move last week. 2x daily-up over $244.85 could renew the upside trend.
- Energy — led by HAL, XOM, OXY & many others. (Oil dipping this a.m.) so keep an eye on this group. Crude is bouncing off the 10-day this morning.
- AAPL — back on the go-to list.
- ABBV
- CVS
- BRK.B
- TD — New highs after last week’s weekly-up rotation
- V & MA — Resetting nicely. See if a bid comes in soon
- BROS
Economic Outlook
The Big CPI report is due on Thursday, FWIW.
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 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
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