Our View

If you think trading is hard right now, just wait until next week. Barring some major event, volumes should steadily decline. It really is that time of the year and for those that have not been making money — hey, I’ve been struggling too — there is absolutely nothing wrong with taking a breather. 

I had a very good start to the year, but the last six weeks have been a different story. I over-traded and increased my size while doing it. They say futures trading is a zero-sum game, but when you’re on the losing end of it, that’s not what it feels like when you open your trading statement. 

There have been a few times in the past when this happened and I followed the PitBull’s rule about taking a step back. It’s a smart thing to do and it’s about self-preservation. A lot of times when people start losing, they just keep trading until they blow up their account. I may not have had a good run but I’m not going down that path. I would rather take a breather and come back trading 1 and 2 lots again. 

Our Lean

Today is T+2. That’s the process where the mutual and ETF funds mark up and mark down stocks at the end of the quarter. The ES had a hard time finding direction yesterday with investors rebalancing their portfolios in the final days of the quarter. This should mean more of the same over the next three days, AKA two-way flow. 

While I think the bias is up, I don’t think that means ‘straight up’ — I expect more choppy trade. 

Our Lean: Despite the late MIM selloff, the late push back up going into the close was a positive. The ES is holding at the 3880-3900 level. If the ES gaps up, our lean would be to sell the early rallies and buy the pullbacks. 

Daily Recap

The ES traded up to 3948 on Globex, up 32 points, and opened Monday’s regular session at 3928.75. After the open, the ES up-ticked to 3931.75 and then quickly sold off down to 3893. After the drop, the ES traded back up to 3929.75 at 11:25 and from there it sold off again, this time down to 3903.25 at 12:35.

For the rest of the day it chopped between 3916 and 3898, then at 3:05 it made a low of 3892.50. The ES traded 3906.50 on the 3:50 cash imbalance and traded 3892.50 on the 4:00 cash close. The ES settled at 3910 on the 5:00 futures close, down 6 handles for the day…

In the end, if you sold every 20-point rally, you probably did pretty well. In terms of the ES’s overall tone, the NQ was a drag on the ES all day. In terms of the ES’s overall trade, 1.44 million contracts traded. That was the lowest trading volume we’ve seen since April 18 and the fifth straight below-average volume session in a row. 

  • Daily Range: 55.50 points
  • H: 3948
  • L: 3892.50

Technical Edge

  • NYSE Breadth: 55% Upside Volume
  • NASDAQ Breadth: 50% Upside Volume 
  • VIX: ~$27

The way I see the current situation is this: On some of the smaller time frames, the stock market has made some great progress. On the larger time frames though, we clearly remain in a downtrend. Bulls need further development for that situation to change and if that occurs — which is still a big “if” right now — it will take some time (i.e. higher lows, reclaiming broken support, etc.)  

I don’t really like the way bonds are turning lower again — like /ZB and TLT — as it has traded alongside equities pretty well this year since the Q4 highs. 

Teal: SPY
Blue: QQQ
Orange: TLT

On the Go-To watch list, there are several new names added. Once they dip/base, they could be great trading candidates. 

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

S&P 500 — ES 

The ES was choppy yesterday but did a good job not rolling over — especially after Friday’s monster rally. From here, the ES needs to build over Friday’s high of ~3920. That’s also the 50% retracement.  

If it can do that, it increases the odds that the ES can clear 3948, which is this week’s high. Above that opens the door to 3987 (the 61.8% retracement) and naturally, 4000, which I expect to be resistance upon the first test. 

On the downside, a move below 3885 puts the 3850s in play along with the now-rising 10-day ema. Below that puts 3807 back in play. 

Keep in mind, the ES bottomed in mid-March and surged 500 points (or 12%) into the quarter-end. If we are in for a similar 12% rally, it would take the ES to ~4100, a level of support that failed in early June. 

If we get to the 50-day and/or 4100 area, it may be a reasonable zone to start looking at some downside protection. 

S&P 500 — SPY

Same setup as Monday, essentially verbatim

Nasdaq — NQ

The NQ situation is pretty simple, as it follows some tight consolidation between the 50% and 61.8% retracement. 

On the downside, bulls need to see it hold the 10-day and the 11,750 area.

On the upside, they need the NQ to clear 12,250, opening the door up to the 12,500 to 12,550 zone and the 50-day. 

XLE

Specifics are down below, but I’m looking to trim into this a.m.’s gap-up action. 

Go-To Watchlist — Individual Stocks

*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.
  1. DXY / UUP — Still carrying ¼ of the original trade (cost basis: $27.20). On the upside, I’m still looking for $28.20+ to trim more. 
    1. $28.50 to $28.65 is the next meaningful upside target. 
    2. On the downside, we will operate against a B/E stop-loss 
  2. MCK — We have hit two trim zones so far on MCK. Feel free to cash the last ⅓ of the position as you see fit. $335 to $340 is a potential upside target if it continues higher. $310 or even $315 is a reasonable stop. 
  3. XLE — triggered inside-and-up long → I am trimming on any move north of $75 and ideally looking for the declining 10-day ema as the trim zone. 

Relative strength leaders (List is cleaned up and shorter!) → 

  • *Look at the strength in health care*
  • BMY
  • MRK
  • ABBV
  • UNH
  • JNJ
  • XLE
  • CLR
  • VRTX
  • DG
  • IBM
  • MCK

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.

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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