Our View 

I really do not know how to start this other than to say things are unraveling. Despite last week’s S&P 5% gain, the ES could not crack 4200. I would like to remind you of the MrTopStep trading rule that says the S&P rallies early in the week and early in the day during a bear market and that’s what it did. 

While there have not been any down months for June in six years and knowing there is a possibility the markets can rally, I think the S&P is eventually gearing up for the second down-leg of the selloff. Like I have said in the past, I would like to think things are “just going to get better,” but unlike past downturns, this one has an abundance of negatives driving the market and most of which are only just beginning to unwind:

There are fears of “fuel rationing” and rolling blackouts in the Midwest are a real possibility this summer

Bottom line, there still seems to be a lot left to shake out in global oil and energy markets before it’s fully understood what the longer-term trajectory might be for prices. Right now, they are crushingly high for both consumers and businesses. Crude oil prices have been above $100 per barrel since March with both Brent and WTI now pushing toward $120. Gasoline prices are at record highs with at least seven states now facing pump prices over +$5 per gallon. Diesel fuel prices are soaring even more with the national average now at $5.61 and close to $7 per gallon in some regions.

Food prices continue to climb, both at restaurants and in the grocery stores. Semiconductors remain in tight supply, as do truckers and workers. Ag prices continue to rise as well. 

Our View

I hate to sound so negative right now — truly, it pains me as I’m a bull at heart — but this is the reality we’re faced with right now. As spoken by some prominent figures in today’s market → 

Last week, JPMorgan’s Jamie Dimon said to “brace yourself” for an economic hurricane caused by the Fed and Ukraine war. “Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this, the hurricane is right out there, down the road, coming our way.”

Goldman Sachs President and Chief Operating Officer John Waldron: The current economic turmoil is one of the most challenging ones he has ever faced in his career and sees unprecedented shocks in the economy. 

Tesla’s Elon Musk: I feel “super bad” about the economy; Tesla needs to cut 10% of salaried jobs.

Ben Bernanke’s Economic Warning: The former Federal Reserve chair warns that the U.S. could be headed for a period of “stagflation.”

Our Lean 

Remember the 500-point rally that began on March 15th? The ES made a low at 4129.50 and rallied to 4631 in 10 sessions. Then the ES made a low on May 20th at 3807.50. In that 10-week period from the high to the low, the ES sold off 1,207 handles. Now six days after that new low, the ES made a high of 4202.50, up almost 400 points. 

The takeaway is that the first leg up took 10 trading days to go 500 pts and the most recent rally took 6 days to rally 395 points. It’s hard to see how that’s bullish, but when you look at Friday’s price action, the ES held 4100 in a low-volume grind. 

Our lean, we think we could see higher prices in the first part of the week, but with all the warnings and Putin firing long-range missiles at Kyiv, we have to be on our toes. As Jamie Dimon said, the financial hurricane is out there and it’s coming our way. It’s not a question of “if” it’s coming, but “when.” 

Daily Recap

The ES traded to 4189.00 overnight but sold off down to 4148.50 going into the 8:30 jobs report. It sold off down to 4130.75 on Globex after the nonfarm payroll number and opened the 9:30 session at 4125.50. From there, it down-ticked to 4122, traded 4141.75 at 9:33 and then sold off down to a new low at 4115.50 at 9:46. 

After the low, the ES rallied up to 4142.25, sold off down to 4123, rallied up to a lower high at 4139.75 at 10:18, and traded down to a new low at 4109 at 10:41. After the new low, the ES short covered up to the 4121 area and going into 11:30 made another new low at 4096.75. This type of ‘pop and drop’ price action continued with the ES trading in a 25-point range until 12:52 when the future ‘popped’ back up to 4134.50 at 1:07, and sold off down to 4104.50  at 2:02. 

The ES had one last push up to the 4123 level at 2:20 and sold off down to 4100.50 at 3:18. The ES continued its pop and drop price action right into the 3:50 cash imbalance that flipped from $365 million to sell to $36 million to buy. The ES traded 4108 on the 4:00 cash close and settled at 4109.50 at 5:00, down 75.75 points or -1.57% on the day. 

In the end, it was what we call a ‘no day’ — there was no trade all day. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, volume was the lowest in a few weeks at 1.48 million contracts traded. 

  • Daily Range: 92.25 points
  • H: 4189
  • L: 4096.75

Technical Edge

  • NYSE Breadth: 23% Upside Volume
  • NASDAQ Breadth: 31% Upside Volume
  • VIX: ~$25.50

The S&P sputtered despite a better-than-expected jobs report on Friday and ended the week lower by 1.2%. We got off a quick 15-point winner off the open and it was a chop-fest after that. 

Now the bulls have to be careful here. 

While a “pause” was a great development for longs, we must see support continue to hold. After a powerful upside thrust from May 25 to May 27, the S&P has been consolidating. If that consolidation rolls over to the downside, the low is likely in play. 

If it clears resistance, we can see further gains. Let’s have an open mind about how things can go. 

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

We have a pretty similar setup across the board on the indices right now. 

S&P 500 — ES

Coming into this week, it’s very simple. The ES is holding active support (the 10-day ema) and consolidating in a prior support zone. 

Resistance remains at 4175. If we can clear that, last week’s high is in play at 4202. Above that opens the door to 4220 and the 50-day moving average. 

On the downside, I am watching the 10-day. More critical is last week’s low at 4071.50. Below that level and the bulls could really find themselves on the ropes if that level is not reclaimed. 

SPY

Similar situation for SPY. I’m watching last week’s high at $417.44 and last week’s low of $406.93.

A break beyond this range can create a continuation trade in either direction. On the upside, it puts $421 in play, followed by the 50-day. On the downside, it puts $405 in play, then the 21-day and $400 or lower. 

Nasdaq — NQ

Coming into the new week, all of these are pretty similar. 

12,950 is key on the upside (last week’s high) and 12,440 is key on the downside (last week’s low). 

Weekly-up could trigger a move to the 50-day. Weekly-down puts the 21-day in play, followed by 12,200 and 12,050. Below 12K opens the door down to 11,700.

NEX

A dip below $12 that holds $11.80 could give late bulls an opportunity to step into NEX, which is one of the few stocks displaying a breakout right now. 

Other than that, we have these four plays on watch:

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. Great “reset trade” on Friday as AMD dipped and held just above the monthly-up trigger. 
  2. DXY / UUP — Trimmed into 27.50 as the first target. Now looking for $27.70 to $27.75. 

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

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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