Our View
On Friday I talked to JF, the guy who ran the open outcry options execution at my floor desk. We chatted about how hard trading has gotten and I asked him if he was still reading the Opening Print.
He grumbled something and I said, “do you still read it?” He said, “Yeah, but sometimes it’s so depressing to read.”
The Opening Print is not supposed to be depressing; it’s supposed to be informative. That said, I get it. In some capacity most of you are long stocks and the last thing you want to hear is a long list of economic and geopolitical blow-ups every day. Look, I’m a bull at heart and would much rather be buying dips than selling rips. But just because we want a rosier backdrop doesn’t mean we can ignore the realities we’re in right now — it’s too irresponsible.
I am concerned like everyone else, but I’m just the messenger and just trying to help.
Our View
All that said, the weekends feel too short given the battering we take during the week. The bottom line is that the markets are “seizing up.” No news is good news…unfortunately though, there is a lot of news. Fifteen years of excessive spending are now finito, adios, kaput.
Kevin O’Leary said that the selloff is a slow grind, 1% to 3% a day. He believes the low will be followed by an ‘event’ where the Dow falls 2,000 to 3,000 points, and that earnings will be good in the first and second quarters of next year. This is something I have been saying for the last four months; That we will walk in one day and there will be a real crash and a period of capitulation.
I still see that coming in the fall and into the Q4 of 2022. While everyone is still screaming “buy the dip,” global stocks have lost an amazing $11 trillion in the first 6 months of the year, but money is now pouring into hedge funds at the fastest rate in 7 years. I am still planning to buy some stocks in September or October when I said the markets would bottom.
Our Lean
The markets are in motion to the downside and should accelerate lower. There is a pile of sell stops under 3850 and again around the 3820 level and I think support is around the 3760 to 3780 zone.
On the flip side, the ES has sold off 366 points in the last 4 days. I think the concern isn’t that the ES can’t go down, it’s how big the bounce will be. In other words, there’s still upside FOMO. Let’s see how the ES handles the 3800 level, which came in near the May low.
Daily Recap
The ES opened Friday’s regular session at 3948.75, traded up to 3958.25 at 9:32 and sold off down to 3930.75. From there, it rallied up to a lower high at 3952, then fell 50 points down toward 3900 just before 10:30.
After the low, the ES rallied back up to another lower high at 3925 and then traded down to a new low at 3898.50 at 11:40. Again, the S&P traded back up to another lower high at 3918.75 and then dropped down to a higher low at 3903. This pattern was repeated several times as the ES again short-covered up to another lower high at 3914.75 at 12:53, traded back down to 3899.00 (held the low), shot up to 3928 at 1:51, and traded back down to 3908.25 at 2:05.
After some back-and-fill, the ES traded back up to 3926.75 and then back down to 3913 at 2:42, then traded 3906 as the 3:50 cash imbalance showed $2.7 billion to sell. From there it traded up to the 3920 level and sold off and traded 3900.50 on the 4:00 cash close. It settled at 3905.50, down 110.75 points or -2.67% on the day.
In the end, the bears OWN the tape. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, total volume was 2 million contracts traded, low considering the size of the move.
- Daily Range: 134 points
- H: 4030.50
- L: 3896.50
Technical Edge
- NYSE Breadth: 89% Downside Volume (!)
- NASDAQ Breadth: 79% Downside Volume
- VIX: ~$32.75
We do not have an easy line-up this week. Some of the key events still include the PPI report on Tuesday, retail sales and the Fed’s rate decision on Wednesday, and quad-witch expiration on Friday.
I will only be writing up the S&P today. Due to a family death over the weekend, I just don’t have the energy to write up anything else. The dollar looks set for a strong open, if longs want to trim some of their exposure into the pop.
Game Plan — S&P 500 (ES and SPY)
S&P 500 — ES
The ES is marked about 100 handles lower in the Globex session as I type, setting us up for a gap-down open. In the last four sessions, the S&P has coughed up 366 points.
Trading right near the 3807.50 low, we’ll need to see how it responds here. Does the ES undercut this level and bounce? Or will the next leg lower begin?
I can’t help but think about how poor sentiment is right now and the back-to-back 89%+ downside days on the NYSE.
3800 to 3807 is obviously pivotal. A break of that area and failure to regain it opens up considerable downside exposure, potentially all the way down to 3500 area.
If we get a break of 3807.50 and a reversal, the gap-fill level could be in play in the 3890s.
S&P 500 — SPY
The ES cracked to new lows, but the SPY isn’t there — yet.
Keep an eye on $380.50.
On such a high-octane day, I hate to make it sound so simple, but the reality is that it is. Either $380.50 in the SPY and ~3800 in ES is going to hold or it’s not.
We are either going to trade below the May low and break down even further or — like forcing a basketball under water and letting it go — we are going to bounce hard out of this pocket.
If we don’t bounce, we risk $380/3800 turning into resistance and opening up more downside. If we do bounce, it cements the importance of this price level as support and we figure out the upside.
$389 to $390 would be the first area to watch on the upside.
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.
- DXY / UUP — Trimmed into $27.50 as the first target. Now looking for $27.70 to $27.75. This tends to be a slow mover and it one we can hold for a while as long as our risk level holds.
Relative strength leaders (List is cleaned up and shorter!) →
- These are on watch for dip-buys:
- XLE
- AR
- XOM
- TECK
- DLTR
- AMD — watch $104.55 (monthly-up)
- IBM (of all names)
- DOW
- ARCH
- NVA
- XLU
- TMST
- VRTX — trying for weekly-up this a.m.
- AMGN
- MRK
- MCK
- BMY
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.
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