Today’s Game Plan Video Can Be Found Here. Thank you!
Our View
Yesterday was a good example of what happens after a large drop. They say the S&P falls 3x faster vs. when it rallies, but I don’t think that’s the case. It’s been a constant barrage of headlines to fuel things in both directions, but yesterday was a big risk-on day, while oil, gold, grains and the dollar all fell.
The ES rallied sharply yesterday, but this morning’s CPI number could throw cold water on the rally. On another note, Goldman Sachs raised its 2022 estimates for share buybacks in the S&P 500 to $1 trillion.
In all honesty, there is just too much to take in right now…Buybacks, CPI, earnings, the Fed, turmoil in Eastern Europe, inflation…the list goes on and on and you can see its impact on the market.
When this list shortens, the market can rally.
Our Lean
History has taught us that big drops can be preceded by big rallies. I think the odds favor some further upside, but I don’t think the ES will go up as much or hold as well. 4340 is a critical level.
Remember, we’re still in a downtrend until proven otherwise. We need a return of demand and a new trend to emerge before bulls can regain meaningful control.
Our lean is to buy the early pullback and gingerly sell the rallies.
Daily Recap
The ES traded ~4255 on the regular session open, up 102.50 points from the prior settlement, and then traded down to the low of the day at 4230.75 at 9:53.
There were a lot of small dips, rips and back-and-fill trades on the way to the session high of 4298.25, which came just after 3:30. The rally up until that point was very orderly. Each meaningful rally on the day was met with a 20- to 25-handle dip. Pre-2022, these would be massive dips on the day. In today’s market, they just look orderly — how screwy is that?
The ES traded 4283 as the 3:50 cash imbalance showed $1.76 billion to buy, traded down to 4269, and settled at 4277 on the 4:00 cash close. On the 5:00 settlement, the ES closed at 4275.25, up 127.50 points or 3.1%.
In the end, it’s like I said: The ES always rallies on Globex after a hard decline, but this time this rally stuck and it just kept going.
In terms of the ES’s overall tone, it went from extremely weak the prior day to the firmest in a few weeks. In terms of the ES’s overall trade, 1.59 million futures traded. The ES notched its largest one-day percentage gain since June 2020, while all three indices broke a four-session losing streak.
Yet the market lacked breadth.
- Total Range: 146.25 points
- H: 4298.25
- L: 4152
- C: 4275.25 (right on target)
Technical Edge
- NYSE Breadth: 74.8% Upside Volume
- NASDAQ Breadth: 80.2% Upside Volume (!)
The rallies feel good. It’s part of the trick, the trick that says, “hey guys, I think the coast is clear!”
At one point, the coast will be clear, but for now we need to stay on our toes and be untrusting of the rallies. This is what I like to call a “prove-it” market — prove it to us that the bulls are back in control.
Despite the nice gains yesterday, we still didn’t register an 80%+ upside volume breadth day. That’s disappointing given that we rallied out of the gate and generated a strong return throughout the session. In fact, not once did we hit the 80% mark on volume breadth. That to me says this is more of a dead-cat bounce than a true demand-has-returned type of reversal.
If today can prove otherwise, we’ll change our tune.
Game Plan — Amazon Stock Split
Yesterday was a feel-good rally. The market gapped up, wavered but held, then powered higher. The ES closed right at our key level of 4275, (it closed 4275.25).
To me, that still presents caution, although this morning’s 40-handle dip (~1%) is pre-CPI profit taking, IMO.
Yesterday after the close, Amazon announced a 20-for-1 stock split and a $10 billion buyback plan. Although the stock has struggled, it still sports a $1.4 trillion market cap, so the buyback is nothing to get worked up over, but I want to touch on stock splits.
When Tesla and Apple announced their splits in the summer of 2020, the stocks exploded. People are wondering if Amazon’s stock split will inspire the same reaction.
It could, especially if the market responds favorably from these levels. But just like the overall market, I am cautious on that reaction for two reasons.
- I believe stock splits are reacted to favorably when the environment is favorable. In the summer of 2020, bulls were in control and risk was running wild. In 2022, that’s not the case thus far.
- Alphabet announced a 20:1 stock split on 2/11 and a buyback plan when it reported earnings. While the move sent GOOGL to all-time highs, it faded almost immediately.
So I’m using those two reactions as a blueprint for AMZN. Let’s see if it can buck the trend.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
*Covered in video*
Keep it simple. Over 4275 puts 4300 in play. Above that and the ES can fly to ~4350.
The upside levels are:
- 4275-78
- 4300-ish — yesterday’s high
- 4310 to 4312
- 4350 & the 21-day
Downside levels of interest:
- 4223
- 4190
- 4139 to 4152
- ~4102 — Feb. Low
*Just go level-to-level. “If 4223 fails, 4190 is in play.” “If ES clears 4275, 4300 is in play.”
Nasdaq — NQ
- Feel free to extrapolate this layout to the QQQ.
*Covered in video*
Upside levels:
- 13,750 to 13,800
- 13,880 — This week’s high
- 14,000
Downside Levels:
- 13,550
- 13,250
- 13,100
Crude & Gold — *Covered in Video*
*Volatility remains incredibly high in the commodities space. If trading the futures, keep that in mind. Consider smaller position sizes and honor your targets and stops.
Crude
Yesterday we wrote that crude “has a wide-ranged inside day” and that “a break in either direction can create a continuation move.” Well that’s exactly what we got, with oil breaking Tuesday’s low at $117.07 and plunging down to the $103.50 area.
I had $103 to $105 noted in the Game Plan, but I didn’t pull the trigger due to the extreme volatility. While this zone held and oil regained the 10-day ema, we must be cautious here.
As we said in the video, let’s see if we can get another inside day today.
If we get a close above $116, even better. An inside-and-up day in that scenario could put $120+ back on the table. Otherwise, an inside-and-up day could put $115 to $116 in play before we look for higher levels.
An inside-and-down day (especially on a close below the 10-day) could put this week’s low in play.
My big downside level to focus on remains the 21-day and $100 level.
Gold
Gold continues to trade well, but it’s volatile. Yesterday’s Game Plan said, “Now let’s see if it can hold above $2,000. Below puts $1961 to $1975 back in play.”
Bouncing from $1975 now and bulls still seem to be in control. However, as we said in the video, I don’t want to see this one lose the active trend. That would mean losing the $1961 and $1975 levels, as well as the 10-day ema.
If that happens, we could see the 21-day, followed by the $1880 to $1900 area, which is the 61.8% retracement and the Q4 high.
The CPI report will be meaningful for gold.
An inside-and-up day is ideal.
Go-To Watch List: Boring Is Working + Energy & Defense
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely
- Gold
- TU
- TECK
- Energy —XLE, APA, fCNQ, CVX, ENB
- Boring but Good: BRK.B, KHC, MKC
- ABBV, BMY
- FCX
- ADM — looking to buy near $80
- Defense — RTX, GD, LMT, NOC
- CHKP — $140+ Daily-up rotation
- UPST
- COOP
- AR
- COST, DLTR, BBY
- BTU — Daily up over $21.85
Economic Outlook
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