Our View
They say the S&P goes down faster than it goes up. Sometimes it does but not this time…
Yesterday’s rally was relentless and after the ES finally did dip, it traded back up to new highs on the close. Some people do not think the bond selling and stock buying are tied to the March end-of-quarter rebalance.
I think it is.
Our Lean
Part of trading is owning your mistakes and losses —I screwed up in the lean yesterday. My lean was to sell the early rally and buy the dips, but the ES rallied further than I thought it would. In the last week or so, the ES opens up and immediately rallies.
As much as you may love the current rally, I think it’s important not to get overly bullish after a 9.3% rally in six days. What’s really playing into the buy-the-dips trade right now is the extremely low volume is creating a “thin-to-win” trade.
That said, I think we could start to see a pullback in the next few days. I’m not saying you can’t buy the dips, but I think 4520 and 4540-4550 could be tough areas on the upside. I don’t think all the shorts have been covered yet, but the bulk of them have.
I would finish by saying there are two distinct timeframes for pullback lows: 10:30 to 11:00 and around 2:30. Let’s see if that trend continues.
Daily Recap
The ES sold off down to 4433 on Globex and opened Tuesday’s regular session at 4467. After the open, the ES ripped higher all the way up to 4502 at 10:44, pulled back to 4491, then rallied up to a new high at 4406 at 11:28.
After the high, the ES sold off 62.50 points down to 4468.50 at 12:34 and then traded all the way back up to 4504.50 at 1:16. After chopping between 4490 and 4515, the ES traded 4513 as the 3:50 cash imbalance flipped from $728 million to sell to $521 million to buy.
After a quick dip, the ES rallied up to a new high at 4514.75 on the 4:00 cash close before settling at 4505.75 on the 5:00 futures close, up ~53 points or 1.2% on the day.
In terms of the ES’s and NQ’s overall tone, they were firm all day and on all the dips. In terms of the ES’s overall trade, volume was steady but low at 1.17 million contracts traded. In fact, it was the lowest volume day in the ES since Dec. 31.
Yesterday’s moves had all three U.S. indexes up at least 2.6% for March, which is quite a comeback for a market that was down almost 15% just a few days ago.
- Range: 81.75 points
- H: 4514.75
- L: 4413
Technical Edge
- NYSE Breadth: 70.1% Upside Volume
- NASDAQ Breadth: 80% Upside Volume (!)
The Nasdaq has generated its third day of 80%+ upside volume in the last five sessions (and fourth in the last ten). Further, the Nasdaq has generated upside volume of at least 77% in five of the last six sessions.
It’s been an impressive stretch for tech, but damn, it should be. This group became so oversold it was ridiculous.
Game Plan
It has been a solid run for the bulls lately and a needed rally at that. Given the situation though, it’s still tough to sort out whether this is a change in tune for the market or simply a really strong dead-cat bounce.
I don’t necessarily lean one way or the other at the moment. I will say, stronger breadth would have me feeling better about the bounce. That said, I also believe we’ll have a better buying opportunity in the future.
What I’m really saying is: I think we’ll get a better opportunity on the long side, but don’t want to fight the trend.
As it pertains to more upside, see the below chart.
S&P 500 — SPY
- Feel free to extrapolate the below levels to the ES
Now pressing through the 200-day, Monday’s high and last week’s high, the SPY has a pretty clear objective: Hold those levels on the downside and fish for $453.50 on the upside.
The latter is the 61.8% retracement for the entire correction. Above that puts $458 on the table. Below the 200-day and $441 could be back in play — the prior March high.
Nasdaq — NQ
- Feel free to extrapolate the below levels to the QQQ
The NQ powered through a critical area, IMO — which was covered in the video.
It pushed through 14,375, which was the prior March high, the Q4 low, the 61.8% retracement of the current range and the declining 50-day. I think we really need to acknowledge that feat and it’s not so surprising when we look at the breadth numbers pointed out above.
14,375 now becomes a must-hold support area on the downside. Below it puts the 10-day and 21-day in play.
On the upside, 15,000 is on watch.
Gold
Gold continues to struggle lately despite high inflation. Fed tightening is not a positive, as it strengthens the dollar.
As a buyer, I’m still waiting for a dip down to the 50-day moving average and the Q4 high. On the upside, it needs to regain the 21-day and 10-day moving averages, particularly the latter.
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, as there are several updates from trades triggered from the newsletter!!
- NKE — Perfect fade from the post-EPS rally. Trim & trail or exit fully. Nice work.
- PANW — Definitely trimming ⅓ to ½ here at ATHs. Would love to see a further push to the upside.
- BRK.B — Hit $342 trim spot. Trimmed another ⅓ at $350 — down to runners but no problem with cashing out completely here and look for a BTD opportunity.
- VRTX — Trimmed ⅓ at/near $250. $254-$255 next trim spot (small).
- F — 2x weekly up rotation is triggered (from video). Looking for $17.50 to $17.80 as first trim area. Followed by the declining 50-day. Would love a gap-fill at $19.87.
- BMY — Trimmed ⅓ to ½ here. Look for $73.50 to $75 next.
- COST — Trimmed ½ at $565. Looking at $545 as possible dip-buy spot.
- TECK
- TU
- MKC — Watching $99+ (weekly-up rotation)
- CCK
- Energy —XLE, APA, CNQ, CVX, ENB, PXD — robust strength
- ABBV
- ADM
- CHKP
- AR
- DLTR
Economic Outlook
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