Our View
I’m doing my best to condense the OP. I love writing it, but sometimes I feel like writing too much throws people off and the length makes it harder to digest.
If this week’s gain holds, it will be the best weekly gain for the S&P since November 2019. The ES is trying to move higher, but I also think the rally will ultimately end up being another ‘dead cat’ bounce.
The days of “Don’t fight the Fed” are over for now. This doesn’t mean the S&P can’t go back up — it will eventually, as it always does — but things are extremely out of balance right now. According to Goldman Sachs, the decline in the S&P 500 in recent weeks suggests about a 40% likelihood of a U.S. recession. They added:
“Separately, our economists estimate there’s a 20% to 35% chance of a U.S. downturn, which is roughly in line with models based on U.S. Treasury yields.”
I think the public needs to recognize that there is a big financial and geopolitical shift occurring right now. I said a few weeks ago that everything felt disjointed and that something big was going to happen. I still think that way.
Our Lean
I want to explain something in this volatile environment. There are many times that I have written the ‘Lean’ when the ES was higher after the close and so the lean was to sell the early rallies the next day. However, by the time the markets open, the ES is already down 60 points. Or the Lean was to buy the early weakness when it was down on Globex but ended up sharply higher by the open. The ranges have not been easy.
I like trading the gaps and the trends, but I’m also a bull and like buying the falling knives when the setups are favorable.
Our Lean is that the rally is not over yet.
If the ES gaps down, I would be looking to buy the early weakness. You can sell the early rallies and buy weakness or just be patient and buy the pullbacks. Today is the March Quad Witching options expiration. I don’t think the shorts are out yet and there are still a lot of buy stops to run.
If the ES is at or near its high of the day at 2:30, I’ll be looking for an LFR (Late Friday RIP).
Daily Recap
The ES opened Thursday’s regular session at 4329.25 and rallied up to 4350 at 9:46. After a 10 point dip to the VWAP, the ES bounced up to 4364 at 10:14. The ES sold back down to 4343 and then several buy programs hit, pushing the futures all the way up to 4373.75.
The ES traded up to a new high at 4393.25 at 2:04, then pulled back to 4377 and traded rallied to 4392.50 at 3:06. From there it dropped like a rock down to 4375.25 as the early MIM showed $1.4 billion to sell.
The 3:50 cash imbalance showed $2.7 billion to sell and the ES traded down to 4389.50 before ripping to a new high at 4406.75, then traded 4405 on the 4:00 cash close. The ES closed higher by 52 points or 1.2% on the day.
In the end, the markets held solid until the MIM started showing some decent size for sale, however that wasn’t enough to stop a late-day rip. In terms of the ES’s overall tone, it remained firm. In terms of the ES’s overall trade, volume was lower at 1.39 million futures traded.
Technical Edge
- NYSE Breadth: 76.3% Upside Volume
- NASDAQ Breadth: 82% Upside Volume (!)
While we had a back-to-back day with 80%+ upside volume on the Nasdaq, we couldn’t quite get there on the NYSE. Despite the S&P rallying 5.8% in the last three days (up 2.2%, 2.23%, and 1.25%), we only got one day with an 80%+ upside volume day.
It was good seeing some prior tech leaders — AAPL, NVDA, TSLA, AMZN, etc. — hold some key levels and/or clear active resistance.
There are definitely some improvements out there, but we’re not waving the “all clear” flag just yet. Specifically, many stocks are still mired in deep downtrends and are below resistance.
Game Plan
This was a pretty good week, so we are keeping the Game Plan short today.
We were able to hit a couple of nice cash flow trades early in the week while waiting for a possible “sell the rumor, buy the news” reaction to the Fed. We got it and now we see how the rally plays out.
Our XLE trade worked flawlessly on Thursday, with the next price target noted below.
S&P 500 — ES
We are back to a key area on the chart. Not only was 4400-4420 resistance earlier this month, but bulls also face the 50-week and 10-week moving averages, as well as the 61.8% retracement.
This creates both opportunity and risk.
The risk is clear — if the ES fails here, it could rollover. However, the opportunity is grand, which comes if the ES can clear all of these measures.
**Just go level to level. For example, if the ES clears 4407, it puts ~4418 in play. If it breaks below 4353, it puts 4320 in play.**
Upside levels to watch:
- 4406.75 — Thursday’s high
- 4418 — March high
- 50-day
- 4460 & the 200-day
Downside levels to watch:
- 4353 and Daily VWAP
- 4320 — Thursday’s low
- 10-day and 21-day moving averages
- 4260 to 4268
Nasdaq — NQ
- Feel free to extrapolate this layout to the QQQ.
Solid Thursday, but I’m watching the same “big theme” areas as yesterday. If bulls maintain strength I want to see 14,375 and the 50-day. Below 13,750 creates a problem.
Upside levels to watch:
- 14,150
- 14,375
- 50-day
Downside levels to watch:
- 13,820
- 13,760 (losing 10-day and 21-day)
- 13,540
Individual Stocks
XLE — Trimmed at $73.55. B/E stop now and look for $75 for the next trim spot.
NVDA — Cleared 61.8% retracement, 50-day, and downtrend resistance (chart in yesterday’s Plan). Now see if it maintains above these marks, putting $265 in play.
Crude
Needs to get up through the 10-day and 21-day, otherwise risks another test of the $94 to $95 area and the 50-day.
EXPE
Back over all major MAs and major level at ~$188 (2021 high).
After an inside day, I’m now looking for an inside-and-up rotation over $193 to put EXPE over the 61.8% retracement and Thursday’s high.
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.
- MKC — same setup as yesterday. Watching $99
- TU — Now up through the 10-day. Looking to trim ½ at $26 again.
- BMY — Trimmed ⅓ to ½ here. Look for $73.50 to $75 next.
- BRK.B — Hit $342 trim spot. Another trim at $350.
- VRTX — Trimmed ⅓ at/near $250. $254-$255 next trim spot (small).
- TECK
- CCK
- Energy —XLE, APA, CNQ, CVX, ENB
- ABBV
- ADM
- CHKP
- AR
- COST — looking for $565
- DLTR
Economic Outlook
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