Our View
The higher the market goes, the more unsettled I get. I still don’t think the selloff is over, but at 4600 the ES is almost 400 points off its January low and just over 200 points away from its all-time contract high.
The ES has now hit the 61.8% retracement of its January drop. I’m not going to do a big Our View today. Today’s action comes ahead of the monthly labor report, which should be a total shit show.
An expanding economy and over 4 million people quitting their jobs in December. There have been about 10 million job openings for the last 10 months.
Our Lean
“Trade or fade” as the PitBull says and that’s what we do in the MTS chat — we trade.
I don’t feel it’s right to talk about good calls because as soon as you do, you go cold. I’m a scalper that likes to hold for the larger intraday moves. I get in and out…I am not getting married to either direction.
Just before the MIM came out I posted this in the chat:
- IMPRO: Dboy :(3:38:40 PM): NQ lower than it was yesterday after GOOG at 5:00 (after a big beat).
As a result, I got out of my long ES from 4564 and 4579 and went short the NQ. I had a feeling everyone was too long when the MIM came out and with the NQ underperforming. Going into the imbalance I thought the upside was limited, and the ES ended up falling over 40 points down to ~4540 and the NQ fell almost 300 points in 20 minutes.
Our Real Lean
I don’t want to get overly bullish or bearish, but I think yesterday’s selloff could continue today. Yesterday’s late-day price action could be a precursor to FRYDAY’s jobs number. If the ES gaps down I may buy the open or the first leg down after the lower open.
My guess is we see two-way price action and lower prices as the day drags on.
If I’m wrong, 4575 would be where I think it could short cover too. However, I want to get past the open and try to get a read on the price action. There’s nothing wrong with sitting back a bit and letting the price action “come to you.”
The problem of the open this morning will be the big discount between the S&P cash that closed 4589.38 and the ES futures trading at 4534.00 at 10:30 pm.
That’s a big 55.38 point discount to the S&P cash, with fair value (FV) at -8.68. If you read the link, you will see the sell program in the ES comes in at -16.24. That means a lot of bids will come in if it opens that low. Most of the time, the ES will start to short cover just before the open to realign itself back to FV.
Daily Recap
The ES traded up to 4590 on Globex just before 8:00 am and sold off down to 4559.75 by the time of the open. We made an early low at 4555, rallied up to 4569 at 9:39, and then sold off 24 points down to 4545 at 9:50.
Ultimately, they sold the open as the ES put in a series of lower highs and lower lows until it bottomed at ~4535 shortly after 11 am. An hour later at 12:10, the ES pushed up to 4565, snapping its streak of lower highs, and used that momentum to rally through the afternoon.
A pop to 4573 was met with a drop down to 4560 around 2:30, but bulls bought the dip and ramped the ES to new highs near 4585, which became resistance. The ES traded 4586 just after the 3:50 MIM reveal showed $1.1 billion to buy, then pulled back and closed the 4 pm session at 4577.25.
After 4:00, the ES sold back off down to 4540 after FB reported earnings and settled at 4548.50 on the 5:00 futures close, down a point on the day. If we go by the 4 pm close, the ES climbed almost 1% on the day or about 42 handles.
In the End
In the end, it’s just like the title of the OP says: Drop, Chop and Pop!
In terms of the ES’s overall tone, it was semi-weak on the early pullback and firmed up nicely until Meta/Facebook shares dropped 20% after releasing its Q4 earnings and Spotify fell 13% after the bell. In terms of the ES’s overall trade, volume was lower at 1.54 million contracts traded.
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.
Technical Edge
- NYSE Breadth: 45.5% Upside Volume
- NASDAQ Breadth: 39.9% Upside Volume
This has not been easy stuff to navigate, but I am happy with how we’ve done. Danny has been all over selling the early rallies lately and the other day, he really threaded the needle with his “40-point dip, late-day rally.”
I’m also relieved at how well the SPY trade has gone too. We’ve hit our two upside targets and yesterday said we are “getting a little more defensive.”
In a tough tape, getting these wins are important for the account, but also for our mental bankroll.
Game Plan
The futures have been under pressure since Wednesday’s close and remain that way near the open, with the NQ and ES down about 2% and 1%, respectively. There were some warning signs with Wednesday’s action, such as poor breadth and weakness in ARKK and Bitcoin.
It’s healthy for the market to work off a little of this recent excess. But let’s see how it responds. I want to take today slowly and see how this gap-down is handled. Specifically, is it bought and the damage is contained or will the losses grow?
Let’s let the market show us its hand.
S&P 500
Yesterday we said: “I’m trimming into this morning’s rally and will re-evaluate.”
The “why” is pretty straightforward at this point (just look at the chart above) and we have written about it more than once.
From here, let’s see where support comes into play. Ideally, it will be in the $449 to $450 area. That’s the December low, 8/10-day moving averages and the 50% retracement.
Below that and $444 and the 200-day are in play. Above this week’s high puts the 50-day on tap.
Individual Stocks & Go-To Watchlist — ARKK, TSLA, ABBV
Our plan to take profits yesterday near the open has paid off quite nicely and allowed us to regroup as the pace in the market picks up. Let’s see what today holds.
ARKK
Not much of a trade here yet, but I wanted to put it out there as ARKK struggled yesterday and is gapping down today. If we see $65 in the coming days (or hours) it will be important to see how it reacts to this level.
Remember, TSLA is the largest holding in ARKK.
TSLA
Not a simple setup here in TSLA and perhaps best to stay away. However, gapping just below yesterday’s low and near the December low, I want to see if TSLA can quickly reclaim these levels or not.
If not, it could create a downward rotation, putting the 200-day and 50-week moving averages back in play. If it can reclaim them, then the 10-day could be in play.
Keep in mind, both the 10-day and 10-week moving averages have been resistance. For now, the trend is lower until that observation is false.
ABBV
AbbVie stock was able to close above $138.15. Keep an eye on this level — the “line in the sand” so to say.
Above it could keep the 161.8% extension in play. Below it and $135 is on the table, followed by the post-earnings low.
Go-To List — Still Keeping It Short
- AAPL — back on the go-to list
UPS — Not doing a chart yet. But watching daily and/or H4 moving averages and a potential retest of the B/O area near $220 for a buying opportunity. Great EPS reaction - NVDA
- ABBV
- CVS hit new highs on Friday.
- BRK.B — can it build off 2x daily-up?
- TD — decent relative strength. Weekly-up at $80.45 — nice so far
- V & MA — back on the go-to list
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
Economic Outlook
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