Our View
The markets have slowed down and the trade has gotten harder, but the headlines keep coming. Now it’s lots of small stop-runs with long periods of chop mixed in. Maybe part of this has to do with spring break and people taking time off. What would you rather do — sit on a beach in Mexico or sit on your duff looking at the screens and a tough tape all day?
Let’s face it: Covid is no longer the threat it once was and for the most part, the new variant is like getting a cold or no symptoms at all. The Chinese locked down all of Shanghai, a city of 27 million people. Don’t they know that Covid is never going away?
It was probably the wildest three months I have ever seen. I know the markets have rallied and things have quieted down, but all the major concerns are still hanging over the markets and they are not going away. Is the S&P now turning bad news into good or is this just a big dead cat bounce waiting to get sold again?
The way I see it is, the S&P went further and faster than it should have in both directions.
Our Lean
I still think we pull back and there are two approaches. If the ES comes in lower, you can buy the early weakness and sell the rallies. Otherwise, you can just be patient and sell the rallies.
There is a trade the PitBull and I used to do and it’s called the “end of the quarter walk-away.” The idea is that by 12:00 the funds have used up most of their buying for the end of the quarter, leaving the ES susceptible to a selloff.
I don’t know about that today, as I think there is going to be a lot of choppy two-way flow with a bias to lower prices, but I can’t rule out an early rip.
Daily Recap
The ES sold off down to 4602 on Globex and opened Wednesday’s regular session at 4613.25. After the open, the ES rallied up to 4622.50 — the session high — sold off down to 4608.50 at 10:34, and then traded 4618 at 10:51.
The dip to 4596.50 at 11:12 looked like it might be the low, but the ES’s rally up to 4611.50 was resistance from 12:00 to 1:00 and ultimately ended being a lower high, as the index rolled over to new lows at 4574.75 at 3:25. Even though it ended up being $1.1 billion for sale, the late-day imbalance saved the day as the ES ripped 46 points into the close and traded 4498 on the 4:00 cash close. The ES settled at 4601.50 on the 5:00 futures close, down 19.75 points or -0.43% on the day.
In the end, it was all about the big two-way flow late in the day. When the ES was selling off earlier this month, total Globex volume was 500,000 to 800,000 and total daily volume was 1.9 million or higher. Amid this rally though, it has been ⅓ of that. In terms of the ES’s overall tone, it was choppy and weak, but it did rally late. In terms of the ES’s overall trade, volume was LOW at 1.51 million contracts traded.
- Total Range: 52.75
- H: 4627.50
L: 4574.75 - C: 4596.00
Technical Edge
- NYSE Breadth: 40% Upside Volume
- NASDAQ Breadth: 34% Upside Volume
I think there’s no shame in saying “we don’t know” — we don’t know this is the start of a new uptrend and we’re back to buying the dips or part of a massive, FOMO-inducing dead cat bounce.
When you look through the charts, you really can make a case for both outcomes. Here’s my problem.
When trading, I really prefer simple setups. You all see that every morning. Nothing below is overly complex. The most complex thing we do are retracements and that’s not very hard.
Usually, by looking at a chart, I can see “it” within seconds. “It” being the trend and whether buyers or sellers are in control. If I have to look for too long, it’s not clear and I take a pass on that stock or ETF.
When I look at the S&P 500 or the Nasdaq, I don’t get that quick “see it” result and I have to dig and dig and dig. It’s muddy, it’s cloudy, and it’s telling me that we should get through the Q1 rebalance and the jobs report tomorrow before hopefully getting a better view.
That being said, the individual stocks have been more clear than the charts, IMO!
Game Plan
S&P 500
- Feel free to extrapolate this layout to the SPY
Yesterday we talked about the need for some rest, “even if it’s just a mild correction into some short-term support. This would be the healthiest outcome for bulls.”
I think we need to cough up ~100 points in the Spoo and see where things stand. That gets us back into the 10-day and 200-day moving averages. If they hold as support, the trend favors the bulls.
If they fail, then we have to start talking about a potential retrace and could put the 4390 to 4410 area in play next.
If the SPX can take out this week’s high, then 4465 to 4470 is in play.
S&P Futures — ES
Inside day yesterday. If we lose Wednesday’s low of ~4575 and can’t reclaim it, the 4540 area is back in play along with the 10-day.
That will be the first “real test” for bulls on the dip. I expect it to be support on its first test. We’ll see.
CAT
I’m glad I included the first trim target for CAT of ~$225, which was hit yesterday on the daily-up trigger.
From here, I’m going with a break-even stop. I don’t need to watch a winner turn to a loser! On the upside, I will trim more at $226.75 to $227, then most or all at $230.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
- Watching XLB closely for dips! Leading stocks in materials include FCX, NEM, DOW, CTVA, NUE
- PANW — Next trim spot is $645 to $650
- F — After trim, watch entry point near $16.90.
- COST — Down to runners or all out as $575 to $478 trim spot hit!
- DLTR — Weekly-up triggered — $165 is the upside target.
- NVDA — Still Looking for $293 on last ⅓ position
- MCK — looking for test of 10-day ema
- BRK.B — Looking for possible support at 10-day ema
- AVGO
- VRTX
- BMY
- TU — Inside-and-up week at $25.80
- MKC
- CCK
- Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
- ABBV
- BROS
- ADM, MOS
- PANW
- AR
Economic Outlook
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.
Comments are closed