Our View
The daily ranges never fail to amaze me. From its early high at 4337.75 to the post-Fed low at 4258.75, the ES fell 79 points. Then from the low to the late-day high at 4367.50, the ES rallied 110 points.
The ES gained 4.5% in the last two sessions, its largest two-day gain since April 2020, and rallied 5.75% from Tuesday’s low to Wednesday’s high. The Nasdaq gained 3.7% yesterday, its best day since November 2020. It’s up 1,100 points in the last two days.
The list goes on and on…
The DAX is up more than 2,100 points from its low on March 7th, while Hong Kong’s Hang Seng Index soared 9.1% on Wednesday and as of 1:30 am ET, it’s up another 6% on Thursday.
That’s the upside volatility, but we’ve seen it both ways. While stocks are ripping right now, oil and gold remain under pressure, while bonds have seen some large movements as well. Put it all together — and with the VIX still trading at $27 — it’s hard to rule out that the big ranges are about to end anytime soon.
Our Lean
I was trying to sell the ES at or near its early highs and kept getting out, but when I look back at the day’s price action, it was the right call. The ES was not going any higher because it was already sharply higher and it had 4.5 hours to wait for the headlines from the Fed, so what does it do? It weakens.
When the headlines hit it, it sold off down to new daily lows. Here’s the thing, though. The market knew the Fed was going to hike. We all did. The Fed heads have been saying it for weeks and Powell all but confirmed it two weeks ago. So when the market pulled back on the announcement, it was nothing but a stop-run. Why selloff on something that we already knew?
That’s why we wrote this in yesterday’s Our Lean: “If the ES sells off after the headline and the price action is holding, I would be a buyer.”
If the ES’s average range is 120 points and it’s on its high and they want to take it higher still, how do they do it? They have to knock out the longs and get people short in the hole and that’s where yesterday’s stop-run came from. It’s all a process of load and reload.
MrTopStep has a rule that the ES goes sideways or lower after a big up-day. Our lean is to sell the early rallies and buy the pullbacks, keeping in mind the size of the daily ranges. 4420 is on TAP.
The Ned Davis stats show today as being up 25 & down 12 of the last 37 occasions.
Daily Recap
The ES traded up to 4314.75 on Globex early Wednesday morning, pulled back down to the 4290 level and opened the regular session 4293.75. The ES dropped down to 4302 and rallied back up to ~4340 after a headline hit saying, “Ukraine And Russia Draw Up Neutrality Plan To End War.” That was the early high, which came shortly after 10:00.
The ES then dipped to the 4316 area, which was support over the next hour, rallied to a lower high of 4331, then dipped down to 4295. After a quick bounce back to ~4311, the ES entered the 2:00 Fed announcement at 4307.50. Then things got interesting.
The market fell 65 points or 1.5% in a matter of 35 minutes, bottoming at 4242.25 near 2:30, then exploded 94 points or 2.2% to 4333 into 3:50. From there, the rally continued as the cash imbalance showed $2.4 billion to buy and the ES traded up to 4351 on the 4:00 cash close. After 4:00 the ES continued to climb all the way up to 4367.50 at 4:46 and settled at 4362.25 on the 5:00 futures close, up 96 points or 2.25% on the day.
In the end, everyone knew what was coming and that helped fuel the rally. In terms of the ES’s overall tone, it was firm in the first part of the day, weak after 1:00, and then extra firm during the last hour. In terms of the ES’s overall trade, volume was high at 1.952 million contracts traded.
Technical Edge
NOTE!! Please read the Go-To Watchlist today — at least the numbered ones.
- NYSE Breadth: 84.3% Upside Volume (!)
- NASDAQ Breadth: 88.8% Upside Volume (!)
We got exactly what we were looking for on Wednesday, which was a buy-the-news reaction from the Fed even though it raised rates.
Why? Simple: The market knew what the Fed was doing.
They have been talking about it all year and Fed Chair Powell said the rate-hike was on the way. Along with other issues (as laid out yesterday), the market has been moving lower in anticipation of today’s event. Now that it’s here and out of the way (along with clarity on the Fed’s intentions this year), we can begin to focus on the future.
Some potential resolution in Eastern Europe helps while falling oil prices should help inflation. There is some bad in there too, which is that the Fed expects six more hikes this year, but let’s see if we can build on today’s rally in the interim.
Game Plan
An 80%+ upside day would have been great on Tuesday, giving bulls a back-to-back 80%+ reading. Now it will be up to tomorrow to deliver those results and that’s a tall ask. High growth traded better and tech finally found a bid.
Investors are trying to figure out if this is just a dead-cat bounce — and if so, how far will it rally — or if we’re seeing a change in tune (i.e. the bulls making a stand and taking back control).
S&P 500 — ES
Yesterday’s top upside level for us was: “4360 to 4378.” With a high of 4367.50, that comes into play right in that area. From here now, I am taking a “bigger picture” look and will include the SPY next.
If the ES can clear yesterday’s high (and thus the VWAP from the January low), I am watching 4400 — remember how we wouldn’t shut up about this level in early March? — which is where the 61.8% retracement comes into play. Above that and ~4418 is on the table, which is this month’s high.
The declining 50-day is in play next, near 4430.
On the downside, 4303 is yesterday’s 50% retracement and the 21-day SMA. Below those measures puts ~4275 in play (the 10-day ema and key level), then 4260. The bulls don’t want to see the ES lose 4239, which is yesterday’s low.
Upside levels to watch:
- 4367.50 — Wednesday’s high
- 4400
- 4418 — March high
- 4430/50-day
Downside levels to watch:
- 4303 & 21-day sma
- 4275 to 4280
- 4260 — Q4 low
- 4239 — yesterday’s low
SPY
RIght into the VWAP from the January low now. $440 to $441 is my next upside area of interest. There we have the 10-week moving average, 61.8% retracement and March high. Above it puts the 50-day in play.
On the downside, $430 is yesterday’s 50% retracement and 21-day. From there, follow the same layout as the ES.
Nasdaq — NQ
- Feel free to extrapolate this layout to the QQQ.
Yesterday’s upside level of 14,000 held firm, as the NQ now figures out its next direction. It’s an interesting area, as the index leans into downtrend resistance.
If the NQ pushes higher, let’s see how it handles the 14,150 area and the January-low VWAP. That level is minor, but if it’s cleared, I have my entire focus on the 14,375 area. Not only is it the Q4 low, but it’s also the 61.8% retracement, with the declining 50-day not far above it.
On the downside, I don’t want to see the NQ lose 13,720 and the 10-day. That puts 13,450 in play, followed by 13,100.
Upside levels to watch:
- 14,150
- 14,475
- 50-day
Downside levels to watch:
- 13,790
- 13,720
- 13,675 & 10-day
- 13,450
Individual Stocks
Energy Stocks — XLE
ABC correction and back-to-back inside days on the 10-day. Now do we get:
- The inside-and-up day over $72.75, potentially to the 10-day and gap-fill at $73.55. Or
- The inside-and-down day below $70.75, potentially to the 50-day?
Just be prepared and trade either outcome.
NVDA
I can’t stop looking at this chart, with NVDA closing at the 61.8% retracement and the declining 50-day. If it pushes through this area, it’s a major achievement and a nod to the bulls, IMO.
It would open the door to the $265 area next.
On the downside, bulls need to see the $235 area hold as support. Below Wednesday’s low ($231.76) raises too many suspicions.
Go-To Watch List
*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. I really debated making 3-7 into charts, but did not want to clog up the newsletter.
- MKC — same setup as yesterday. Watching $99
- Crude — Inside day (like XLE). For now, looks like $100 could be acting as resistance.
- TU — doji on the 21-day (from Wed) — Now up through the 10-day. Looking to trim ½ at $26 again.
- BMY — Trim ⅓ to ½ here. Struggling with prior high near $69 to $70 and bearish divergence on the RSI.
- BRK.B — Needs to hold $325. $340 to $342 is next trim spot
- TSLA — Right into active resistance (21-day).
- AMZN — Right into active resistance (50-day).
- TECK
- VRTX — breakout over $243. Trim ⅓ at/near $250
- CCK
- Energy —XLE, APA, CNQ, CVX, ENB
- ABBV
- Gold, GDX
- ADM — inside day. Now look for a move over Tuesday’s high
- CHKP
- COOP
- AR
- COST, DLTR
Economic Outlook
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