Our View — Worst Price Action
The next 200 points in the S&P could be up, but I think the odds of that are low and if it did happen, it would be a great selling opportunity. Monday’s down-side price action was the weakest in several days.
The S&P has a way of taking bad news and making good of it, but there are just too many bads right now. I would like to give you better news, but next week we will get past one of the hurdles: The Fed’s first interest rate hike in several years.
There is a ~98% probability that the Fed raises 0.25% and — this is a crazy development — a ~2% chance the Fed does nothing.
Powell has already telegraphed the Fed’s plan to raise, though.
Our Lean
The ES is weak and clearly there has been a fair share of large-cap selling going on. If I have been consistent about one thing, it’s that it’s too early in the year to start calling out lows.
Our lean is the same as yesterday. We know the ES can rally, we just need to figure out the best level to sell it at. I know it’s a tough time to be holding stocks, but this will get better, just not now.
That said, the VIX is high enough that we could see it pull back, meaning we could see a rally today in the indices. If not today, then soon. I have a sell level in the YM at 33,300. If it gets there you can sell against that level. For the ES, I initially have 4225 to 4230 as my first upside sell level, but well above there is 4280 as larger resistance.
Daily Recap
The ES sold off down to 4238 on Globex and opened Monday’s regular session at 4318.75, rallied up to 4321.25 (the early high) and sold down to 4285 at 9:49. After a slight bounce, it sold off down to 4353.25 at 10:58.
The ES rallied up to 4275.25 at 11:11 and then traded down to a new low at 4224.75 at 12:23, traded up to 4247.50, and then back down to a higher low at 4229.25. Then it quickly rallied up to 4246.50 as a headline hit that Russian and Ukraine were making progress in terms of the humanitarian corridors, but no movement on the larger issues, and so the ES then dropped down to a new low at 4223 at 1:20.
It rallied back up to 4242.75 at 2:20 and fell back down to 4206.50 at 3:19 as the early MIM showed $268 million to buy. The ES traded up to 4223.75 at 2:28 and quickly sold off down to 4206.75 3:40. On the 3:50 cash imbalance, the ES traded 4202.75 as the MIM showed $1.6 billion for sale, traded 4197.75 at 3:55 and traded down to new lows at 4196 on the 4:00 cash close. It settled at 4186 on the 5:00 futures close, right near the dead lows of the day, down 134.50 points or 3.1% on the day.
In the end, the down trend continues. In terms of the ES’s overall tone it was one of the weakest trading sessions in several days. In terms of the ES’s overall trade, volume was steady, with a total of 1.83 million contracts trading.
- Total Range: 140 points
- H: 4325.25
- L: 4185.25
Technical Edge
- NYSE Breadth: 28.2% Upside Volume
- NASDAQ Breadth: 35.5% Upside Volume
After a brutal finish yesterday, markets are coming into Tuesday with some modest gains. Like you all have read here for months though, you know I don’t like modest gap-up days after a tough session in a downtrend.
It opens the door for more selling. Yesterday’s action was very orderly to the downside. There were not any big flushes or huge rollovers. There was not really any panic. Unfortunately, panic is what will be needed to bottom.
Game Plan
We are in the midst of uploading a video, covering the S&P, Nasdaq, VIX and oil, for anyone that would prefer to watch that vs. reading the levels below. It’s about 10 minutes.
That may help some of you with the levels and if it’s something that users like, we will incorporate more of them.
For now, let’s see how the gap-up is handled today.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
Overnight rally tried to reclaim the 61.8% at ~4223 and failed. That leaves the ES susceptible to more downside.
The upside levels are:
- 4223
- 4233.50 — O/N high
- 4275 — prior support (an important area and one I would sell into right now)
- 4300 and the declining 10-ema
Downside levels of interest:
- 4185 — Monday’s low. If it doesn’t hold then:
- 4139 — O/N low is on deck. If it doesn’t hold then:
- 4102 — Feb. Low
Crude
An inside day here seems likely and would do wonders for traders, as it helps us navigate the action with a more narrow risk range.
As it stands though, support held exactly where we asked it too: $115 to $116. If it breaks that area, it puts $108 to $110 in play, along with the 10-day ema.
Below that and we could see some support in the $103 to $105 area, but my main focus would shift to $100 and the 21-day sma.
On the upside, over $122.50 keeps the $130.50 high in play.
Go-To Watch List: Boring Is Working + Energy & Defense
AAPL
Anyone who took the weekly-down rotation, I would be covering some on this move, like ½ or more. Shares are gapping lower by about 50 basis points this morning, but the company has a product event today at 1:00 ET.
Let’s put some profit in our pocket and set up the trade to be risk-free (i.e. a break-even stop).
*Feel free to build your own trades off these relative strength leaders*
The current volatility has created a scenario where attractive individual setups are tough to come by. Plain and simple, the overnight gaps are difficult to work with and the elevated VIX and news-driven headline moves make the indices a more attractive playground for traders at the moment.
- Gold — We asked for it to hold the prior resistance as support (at $1961 and $1975). It did, with a low in between these marks and now we’re back over $2,000. Trim some on this push and let’s start looking at more upside levels near the highs (~$2090).
- Boring but Good: BRK.B, KO, KHC, MKC
- ABBV, BMY
- ADM — looking to buy near $80
- Defense — RTX, GD, LMT, NOC — great bounce so far
- Energy — FCX, CNQ, CVX, ENB
- TU
- CHKP, UPST
- COOP
- AR
- CCK
- TECK — 10-ema may be on deck today.
Economic Outlook
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