There is a world of shit coming our way and it’s not just about the stock market. I hate to write “gloom and doom,” but if history repeats itself then maybe we should all start making some preparations. We already know the stock market is crashing and supply chains are a mess, but with the new Russian sanctions, I think gas prices are going to skyrocket.
The PitBull has reminded me countless times about me trying to buy crude calls when oil broke above $30, but the firm turned off the options. I thought it could go to $80 back then and now it’s trading over $120. I think at the heart of the inflation problem is energy prices. When energy prices are high, everything costs more. Next week is going to be a delicate time, with the Fed raising rates when oil is nearing its all-time highs and the highest inflation in over 40 years.
The people of the US have always taken for granted things that most countries would consider luxuries. It’s going to be a wake-up call when there are gas shortages and you can’t get some of the food items you have always taken for granted. I hear people say it all the time that the shelves at the grocery store are not as stocked. Personally, I have seen it a few times, but nothing that I would call a shortage. Why wait until then, though? Why not plan ahead? If you’re wrong you have some extra provisions and if you’re right you may weather the storm a little better. That’s a low-risk trade to me!
Our View — Messy Stuff
This mess is a mess and it’s getting messier. When did 100 to 150 point ranges become normal? I’ll give you the answer: it’s not normal.
I told the PitBull I didn’t see an end to the current volatility and he said the big ranges will go on all year. He has said many times that when ranges expand for long periods of time that there is a tendency to expand even further. I don’t know when the ES will bottom, but I can tell you I am not getting a warm and fuzzy feeling. In fact the ES’s price action has been the worst it’s been since the original selloff down to the ~4100 low.
Our Lean
We are not right every day and will not pretend that that’s the case. But Monday’s fade from our sell spot yielded between 50 and 120 points depending on how long you held for. Yesterday’s sell level was 4275 — the exact high from the session — as the ES fell another 120 points into the close. Again, we’re not perfect, but the last two days have yielded a tremendous windfall on the downside.
That gives us some pause.
A lot of folks thought the ES was going to close up on the day, but the futures got killed. The ES almost always rallies on Globex after it closes weak. UPDATE: That is the case we have here, with the ES and NQ up ~2% and 2.5%, respectively, as of 8:00 ET.
This is a sell-the-rallies market, but sometimes there just isn’t an initial trade. Best to sit back and watch the price action for the first part of the day.
I usually sell a gap-up like this, but I think there could be a further push up. In that case, I’m watching 4275 to 4280 on the ES as initial resistance. If it pushes above that, then turn your focus to the 4340 to 4350 as the next major area. On the YM, I’m watching 33,500.
Daily Recap
The ES opened Tuesday’s regular session at 4201.75, rallied up to 4215.50 and then dropped down to 4180.25. From there, it rallied back up to 4215.25 at 9:46, just a ¼ point off the early high.
After the retest, the ES sold off 55 points down to 4160.25 at 10:10, bounced 35 points back to 4195 and then dropped ~40 points down to a new low at 4156.25 at 10:34. Ultimately, the ES ripped almost 120 points, climbing to 4275 at 1:12.
We had this area flagged as a sell level in the Our Lean section and this exact level marked as “an important area and one I would sell into right now.” in the Technical Edge section.
From there, the ES fell like a rock.
It dropped 94 points over the next hour, rallied 58 handles to ~4239 and then keeled over once again the ES ultimately went out at the low of the day and fell 90 points from the 3:00 high.
Specifically, the ES printed 4184 on the 3:50 cash imbalance as the MIM showed $2.7 billion to sell, traded up to 4194.75 and traded 4165 on the 4:00 cash close. After 4:00, the ES sold off down to a new low at 4148.25 and settled at 4152.25 on the 5:00 futures close, down 34 points or 0.81% on the day.
I’ll tell you though, it felt much worse than that given the volatility.
In the end, it was a day filled with ups and downs that finished poorly. In terms of the ES’s overall tone it was another failed dead cat rally. In terms of the ES’s overall trade, volume was brisk, with 2.29 million contracts trading on the day.
- Total Range: 136.25 points
- H: 4275
- L: 4138.25
Technical Edge
- NYSE Breadth: 64.5% Upside Volume
- NASDAQ Breadth: 60.1% Upside Volume
Despite the market finishing lower on the day, the NYSE and NASDAQ churned out positive breadth readings, which was a bit surprising. The market’s incredible trading ranges are taking a toll on traders.
From peak to trough, Tuesday’s trading range in the ES gave us swings of: 62 points, 122 points, 94 points, 58 points and 90 points. This probably sums it up a little better:
Game Plan
I hope yesterday’s video helped. I apologize on the time it was released. Upload times are very difficult to predict, but we will start doing them at night so we can release them earlier in the morning! However, I urge you to check it out if you have a few minutes.
For now, the ES is up 88 handles from Tuesday’s settlement and trading 4238 as of 7:45 ET.
While it’s always possible we get a gap-and-go to the upside, I have made it pretty clear so far this year that I’m not a fan of gap-up opens in a downtrend. At least from the buy-side.
The SPY is up 1.8% in the pre-market. Can we really build off of that?
I don’t want to force anything today. We’ve done a great job the last two days navigating this mudslide. Let’s see how the gap-up is handled, then apply some levels to it to see if there’s anything to make of it.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
I can’t help but think the 4275 area remains relevant. It’s yesterday’s high and now the declining 10-day ema comes into play near it. If the ES can power through it, the 4310 to 4312 zone could be next.
The upside levels are:
- 4275
- 4310 to 4312
Downside levels of interest:
- 4223
- 4190
- 4139 to 4152
- ~4102 — Feb. Low
*Just go level-to-level. “If 4223 fails, 4190 is in play.” “If ES clear 4275, 4310 is in play.”
SPY
I want to look at SPY really quick, because it’s been a while since we’ve done this chart. Obviously, it looks very similar to the ES, but not everyone trades the ES.
If it clears $426.36 to $427.21 — the Q4 low and Tuesday’s high — it puts the declining 10-day moving average in play, followed by this week’s high at $432.30.
If this morning’s rally is sold into, I’m watching $422.25, then $419.50, followed by yesterday’s low near $415.
Crude, Gold & the VIX
All three are now wavering quite a bit.
Crude has a wide-ranged inside day, with a range of $117.07 at the low to $129.44 at the high. A break in either direction can create a continuation move, but the volatility here is steep.
Gold is finally acting how it should: A safe-haven asset and an inflation hedge. What the hell took so long? I’m holding off here for now. We trimmed the other day and now let’s see how it sets up. Volatile but okay still. I don’t want to micromanage.
VIX faded from the $37 area we highlighted on the video yesterday, but it’s still above $30. Stay cautious.
Go-To Watch List: Boring Is Working + Energy & Defense
AAPL — We were able to get a great cover in our Apple short and now we can put it back on the go-to list. Don’t let a winner turn to a loser.
Bitcoin
Now back above the 10-day, 21-day and 50-day moving averages, let’s see if Bitcoin can climb to $45K. Above $45K could put channel resistance in play, followed by the 200-day.
Below the 10-day, 21-day and 50-day moving averages puts $37.5K on the table. #KISS
*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 — “Trim some on this push” was from yesterday, now let’s see if it can hold above $2,000. Below puts $1961 to $1975 back in play.
- Boring but Good: BRK.B, 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.” — nice doji day Tuesday.
Economic Outlook
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