Our View 

Tuesday was a choppy day and was the last session of May. Wednesday was bumpy too, as it was the first day of June. Even yesterday, the market wanted to push lower and it did in the opening hour of trading before turning and burning higher. 

So what do we make of all of this action? 

I still don’t think we’ve seen the low. There are simply too many headwinds for the S&P. But how do you navigate the current backdrop — expecting lower prices — when we’re in the midst of a bear-market rally? 

You either adjust and trade the two-way flow or you wait for your opportunity to start selling the rallies again. Ironically, “it’s as easy as that” — but it ain’t easy! 

Our Lean

There are new patterns forming in the ES right now. First, an early selloff that leads to several lower lows, and then around 10:30 to 11:30, the sell program ends and the buy program begins. We’ve seen it every day so far this week. 

Here’s the difference, though. 

Over the last several months — and really, for most of this year — we’ve seen these selloffs continue to erode the indices throughout the day until we have declined for hours straight. Bottoming in the morning and rallying in the afternoon is not what we’ve gotten used to. 

The other pattern is, after the ES rallies late in the day and the MIM comes out big to buy, the ES tanks. I think this has a lot to do with the ES being overloaded with the algos and HFT programs. The programs sell and keep selling, but when the program dries up, the bots just flip the switch and start buying. 

Our Lean: The first Friday of the month is always tough to trade and write Our Lean for because you never know what the jobs report is going to do to the tape. As it stands, the ES is down about 25 handles to 4150. 

If the ES dips down into the 4120 to 4125 area, I will be looking at a dip to buy. If support doesn’t come into play, be careful, as the ES can really gain some steam on the downside, potentially down to the 4075 area. 

If we gap down on the open, keep this area in mind. 

On the upside, watch 4175 to 4180. That was resistance yesterday and overnight. Above that, I’m watching 4200. 

The ES did the “monster mash” on the shorts yesterday. Can they do it again on FryDay or is it the bulls’ turn to pay the price? 

Daily Recap

The ES opened Wednesday’s regular session at 4097. After the open, the ES sold off down to 4077.75 at 9:37, rallied up to 4095, and sold off 20 points down to a new low at 4075 at 9:56. 

The market rallied 33 handles to 4108, pulled back down to a new low at 4072.25 just before 10:30 and as the Fed headlines hit the tape. Then the bulls took over, as the ES ripped off eight straight 30-minute gains and closed higher in 10 of the next 11 30-minute windows.

The ES traded up to 4160.50 at 2:45, dipped 12 points, and then rallied 15 points to 4163.75 going into the 3:50 imbalance reading. The MIM showed ~$500 million to buy and the ES closed the 4:00 session at 4175.75. It settled at 4177.75, up 76 points or 1.8%. 

In the end, with the expectation of the early weakness, it was an all-day buy program. In terms of the ES’s overall tone, after 11:00 every 10+ handle drop was bought. In terms of the ES’s overall trade, volume slacked at 1.47 million contracts traded.

  • Daily Range: 106.75 points
  • H: 4179
  • L: 4072.25

Technical Edge

  • NYSE Breadth: 82% Upside Volume (!)
  • NASDAQ Breadth: 83% Upside Volume (!)
  • VIX: ~$25.50

I really wanted to do a video today, but I will wait until this short week is over because today is the monthly jobs report! Nothing is worse than doing an entire video and getting it out before the open just for an econ report to completely shift the entire market.

Yesterday, we said: 

“I’m not saying that we’re guaranteed the low is in for the moment, but I’m saying that if traders do want more upside from here, they must also realize the market needed to rest a bit after big upside thrusts.”

We got that thrust on Thursday as the S&P tagged the prior session’s low and reversed higher in a big way. 

Two things can be true at the same time: We could see a notable upside move and the low could not be in. That’s just reality and it’s why we have to trade what we’re given. 

Game Plan — S&P 500 (ES & SPY), Nasdaq (NQ & QQQ), AMD

S&P 500 — ES

As good as yesterday’s session felt for the bulls, last week’s high continues to keep a lid on the action at 4168. 

If the ES can clear this level, it quickly puts 4175 to 4180 in play, then 4200 to 4220. Those are some pretty tight ranges, but that’s the situation. 

On the downside, there are a few levels sticking out. In the short term, look at the 1-hour chart below. 

I have my eye on the 4125 zone, +/- a couple points. Not only was that resistance but it’s also the “halfback” of yesterday’s range as noted with the 50% retrace. 

In the short term I want to see how that level is handled. As for the bigger picture, the ES has hammered out a nice two-day low in the 4072 area, along with the 10-day moving average. 

Losing these marks does not bode well for the bulls. 

SPY

Daily-up over $417.50 and the 10-week moving average puts $420 to $421 in play, followed by the 50-day near $424.50. 

On the downside, it’s pretty simple. $407 and the 10-day are key. Below $405 and the momentum starts to shift back toward the bears. 

Nasdaq — NQ

The NQ has been trading a little better on the long side, as it holds above the weekly-up rotation level of 12,720. 

Bulls want to see the NQ hold above this level, which would keep yesterday’s high in play at 12,904. However, they need the 12,440 level to hold, along with the 10-day. Lose this level and we could be looking at more downside. 

If the NQ can turn today into a FryDay, it could set the stage for a rally into the 13,350 to 13,400 area. Just be mindful of the 10-week moving average up at 13,025. 

Note how the NQ is in a prior support area, which had buoyed the index until early May. Now we see if this level can be reclaimed (more momentum for the bulls) or if it’s a support level turned into resistance (more momentum for the bears). 

Nasdaq — QQQ

I would love to see the QQQ hold $309.25 — last week’s high. If it can, it keeps $312 to $314 in play. Above that (and daily-up) opens the door to the 10-week moving average near $318. 

AMD

Kudos longs, as you were prepared for the setup in AMD!!

We flagged this one Tuesday and have been watching it all week. AMD held the levels it needed — mainly the $100 mark and the 50-day — then went monthly-up over $104.55. 

That sent us right to our first target between $109 and $110, where we found the 61.8% retracement. We trimmed there and now sit in a situation with a break-even stop-loss. 

Let’s look for $115 to $118 next (the 200-day moving average). Ultimately, I’d love to ride the last chunk of this trade to the $125 area, but let’s just go one level at a time. Cheers!

Go-To Watchlist — Individual Stocks

CTVA — Still watching this setup as a possible trade. 

XLE — Watching for potential dip-buy into the 10-day ema.  

XOM — Also watching for the same dip as XLE. 

AR — Setup still intact. Stalking it 

*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.

We have been spanking the very select individual trades we have taken. For that, I’m super grateful! It shows that discipline wins out in a tough tape. 

  1. AMD — Weekly-up at $104.55 triggered, First target achieved at $109.50. → Now look for $115 to $118 next & breakeven stop-loss. 
  2. DXY / UUP — Can trim into the $27.50 area as the first target. More aggressive longs can look for $27.70 to $27.75 first if they’d rather, but ¼ to ⅓ here makes sense to me. 

Relative strength leaders (List is cleaned up and shorter!) → 

  • These three are on watch for dip-buys:
  • XLE / XOM
  • AR 
  • CTVA
  • DLTR
  • VRTX
  • AMGN
  • MRK
  • MCK
  • JNJ
  • BMY

Economic Calendar

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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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