Our View
Everyone’s looking for good news, but it’s hard to find right now
The bulls can’t buy a positive headline to save their lives right now. As of ~4:00 a.m. ET, the ES is down about 16 handles on Globex. If it finishes lower today too, it will mark the S&P’s eighth decline in the last nine trading sessions. Hell, the S&P can’t even get a sustainable dead-cat bounce for longs to unload into.
Until we get a big downside washout — with a big downside breadth day — it’s hard to talk about stocks making a low.
Recently, Goldman Sachs lowered its year-end price target on the S&P to 4700, down from its prior target of 4900. On the plus side though, that represents roughly 10% upside from current levels. They said:
“A surge in commodity prices and a weaker outlook for US and global economic growth lead us to lower our EPS estimates.
“The current S&P 500 index level of 4260 suggests roughly a 40% likelihood of a downside recessionary case…In a downside scenario, we expect reduced earnings and valuation multiples would cause the S&P 500 to decline by 15% to 3600, in line with the median historical peak-to-trough price decline of 24% around past recessions. However, when the US economy avoids recession, 10%+ S&P 500 corrections typically represent good buying opportunities, with a median subsequent 12-month return of 15%.”
Our Lean
I don’t think there is much we can say that we haven’t heard at this point, but I also think it’s important to be redundant and not lose focus of what’s going on.
The PitBull said we could be heading into a long-term bear market. He also said Cathie Wood’s ARK fund is a disaster. It traded $160 at the highs and now it’s down to $52-and-change after making new lows today.
Today is Day One of the Fed’s two-day meeting (Wednesday afternoon is the rate hike announcement). The trade may slow a little, but that doesn’t mean the ES won’t be volatile.
Our lean is the same today: You can buy the early weakness and sell the rallies or just continue to follow the price action and patiently sell the short-covering rallies. We could see a pop after the Fed’s rate hike, but let’s first get past today.
I’m not saying it will get there, but I have 4210 as my first initial sell area. ES 4100 is still on TAP!!!
Daily Recap
The ES opened Monday’s regular session at 4204.25, rallied ~10 points up to 4214, then flushed down to 4185.50. All this took place in the first 10 minutes of trading. From there, the ES roared higher, climbing 54 handles up to ~4240 just after 11:00.
That was the session high, as the ES then fell 87.50 points amid seven straight declines on the 30-minute chart before bottoming at 4152 around 2:00 pm. The ES then rallied up to 4173.75 just after 3:00 and fell back down to 4154.50 at 3:37, then traded 4164 as the 3:50 cash imbalance showed $655 million to buy
From there it traded up a high of 4168, then dipped to 4165 on the 4:00 cash close. The ES settled at 4171.25 on the 5:00 futures close, down 25.50 points or 0.61% on the day and down 73.50 points from the high of the day.
In the end, I don’t see the dark skies turning blue anytime soon. In terms of the ES’s overall tone, it tried to rally, but the weakness in the NQ was overwhelming. In terms of the ES’s overall trade, volume was steady at 2.04 million contracts traded.
- Total Range: 92.50 points
- H: 4244.75
- L: 4152.25
Technical Edge
- NYSE Breadth: 75% Downside Volume
- NASDAQ Breadth: 71% Downside Volume
For the better part of a month, we have been talking about the potential for a selloff into the Fed event, then a rally once Powell & Co. announces a rate hike. A classic “sell the rumor, buy the news” trade — the opposite that we’ve seen play out over the years.
That said, I want to be careful with that narrative because the trend has clearly been lower. So I don’t want to build up any sort of certainty that we will rally post-Fed, because the reality is, we may not!
But “sell into the event, rally after the announcement” is one scenario I am watching closely.
Game Plan
Pre-Fed days can be choppy and frustrating and I plan to avoid that frustration for the most part. We’ve had 10 weeks to trade this slop so far this year. I think it’s okay to let it set up for a day or two as we work around the Fed.
Now we see commodity prices falling over, while tech continues to get buried. “The generals go down last in a bear market” is a common phrase and with Apple, Alphabet, oil, cybersecurity stocks and more starting to roll over — the leaders — maybe that’s what we’re starting to see.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
This is why we go from level to level. Once the ES failed to get up through 4275, it put the 61.8% retracement near 4223 in play. Once it lost that mark, it opened the door to this month’s low, which is where we are in the Globex session now.
A further drop puts the February low in play near 4100. On a rebound, the ES needs to clear 4223 and the 10-day ema. Above these marks puts 4260 in play, then 4275.
Nasdaq — QQQ
The QQQ is into the February low now near $318. It’s key to see how this level is handled. Do we bounce? Breakdown?
A rally could put $330-ish back in play, but the declining 10-day moving average has been a problem. On the downside, I’m watching $310 (technically $309.75), then $300.
Individual Stocks
I am looking at AAPL, GOOGL, NVDA, QQQ, MSFT and really all of these big names. Many are clinging to multi-week and multi-month lows. It could set us up for a possible break/flush of the lows and then a reclaim of those lows, or it could open us up to a big breakdown.
Keep these names on your radar and see how they hold up. Apple in particular has held up well until the last few days. I want to be patient over the next day or two.
Go-To Watch List
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely.
- TSLA — trim ⅓ on weekly-down short.
- BTU — anyone that took inside-and-down daily rotation, cover ⅔ to all.
- Crude — bounce off $100 initially, now breaking lower. On the downside, $95 is next, followed by the 50-day.
- Gold — At the 21-day now. Need a daily-up rotation or more downside. For the latter, I’m watching $1895 to $1900 (the 61.8% retracement and 10-week moving average).
- TU — let’s see if it holds the 21-day.
- TECK
- Energy —XLE, APA, CNQ, CVX, ENB | b/e stop on these.
- Boring but Good: BRK.B, MKC
- ABBV, BMY
- Gold, GDX
- ADM
- CHKP
- COOP
- AR
- COST, DLTR
Economic Outlook
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