Our View
The higher the ES goes, the lower the volume is. Let’s face it, the bears did not have a lot of time to get out. In a day and a half, the ES rallied over 200 points off the 4129.50 low. Four days later, the ES was up 336 points off its low.
The real question is — and one we’ve been asking all week — is this a dead cat bounce or a real low?
If you believe supply chain disruptions, the skyrocketing price of oil and gas, raging inflation, bonds dropping, the ongoing war in Ukraine and higher rates is not a problem…then buy all you like.
It’s crazy. Brent crude futures rallied $6.12 a barrel to $121.60, the third-highest settlement value of the year and the highest since March 8th. JPMorgan’s Jamie Dimon asked U.S. President Joe Biden in a private meeting this week to encourage more drilling for domestic natural gas in the short term. Dimon has been saying production should be increased and permit approval for renewable energy projects sped up as the war in Ukraine sends energy prices higher.
Don’t lose focus on other commodities either. Corn, beans, wheat and others continue to trade at or near record highs too.
Our Lean
The volumes are low and the ranges are compressed, but I don’t think the selloff is over.
If you recall, the ES traded up to the 4493 level before breaking down late in the day. The 50% retracement of yesterday’s range comes in around 4480.
My lean is to sell the rallies while paying special attention to the levels above and keying in on 4410 down to 4380 on the downside. Again, that doesn’t mean if I see a potential selloff low I won’t buy it, but the focus should be on lower prices and selling the big rallies. There’s still a lot of uncertainty out there right now.
I am going to be totally honest, it’s a lot easier writing about what the S&P is going to do than actually trading it. I tend to be early and that causes some traders to lose track of the trade as it’s hard to go from the “bigger picture” — like “I don’t think the selloff is over” — to actually placing an intraday trade on the index. The wide ranges increase the overall risk too, so try to be nimble with your approaches. Remember, you don’t need to swing at every pitch either, wait for the ones you feel most confident in.
Daily Recap
The ES traded up to 4514-ish on Globex and opened Wednesday’s regular session at 4477.25, down 36.50 points. The ES traded up to 4484, then down to 4465.25 at 9:50.
The ES mostly chopped between the low 4470s and the 4490s through noon, before a 20 point drop after 1:00 sent it down to 4457. After finding support in the mid-4450s, the ES bounced to a high of 4472 — which was morning support and now resistance — before rolling over again. It traded 4460 going into the 3:50 cash imbalance, which showed $1.3 billion for sale.
From there, the ES dove to its regular session low of 4446 and ended the 4:00 cash session at 4446.75. After 4:00, the ES hit a new low at 4444.75 before settling at 4449, down 57.50 points or 1.28% on the day.
In the end, the ES’s overall tone got weaker as the day rolled on. In terms of the ES’s overall trade, volume was LOW at 1.255 million contracts traded.
- Range: 69.25 points
- H: 4514
- L: 4444.75
Technical Edge
- NYSE Breadth: 47.3% Upside Volume
- NASDAQ Breadth: 43.7% Upside Volume
One word to describe the recent action: Stalling.
After a powerful push to the upside, we’re finally seeing the markets chop a bit. That’s actually healthy price action — we need a rest in the market in order for it to continue higher.
That said, there are still a lot of problems out there…inflation, gas prices, geopolitical turmoil, etc.
Game Plan
As far as I’m concerned, the big-picture concerns still linger. However, the short-term momentum belongs with the bulls until key support levels fail again.
S&P 500 — ES
- Feel free to extrapolate the below levels to the SPY
The ES continues to struggle with last week’s high near 4466 and the 200-day. However, the key zone on the downside is being held and that’s the ~4400 level.
A highly relevant level earlier this month, it’s also where the rising 10-day and declining 50-day come into play. If we break yesterday’s low and can’t reclaim it, this is the area I’ll be watching.
On the upside, we have back-to-back highs at ~4515. A break above this level that doesn’t reverse puts 4440 in play, then potentially 4480 — two main levels from this week’s video.
Nasdaq — NQ
- Feel free to extrapolate the below levels to the QQQ
The NQ is holding aboe last week’s high, but more importantly, it’s over the four main levels we’ve been talking about all week: The Q4 low, the March high, the 50-day and the 61.8% retracement.
A break below 14,325 puts 14,155 in play, then potentially 13,900 to 13,950.
Clearing the two-day high of 14,690 could open the door to a larger rally, potentially up to 15,000.
Russell — RTY
- Feel free to extrapolate the below levels to the IWM
The Russell has been a bit concerning to me, hence the mention in today’s Game Plan.
It’s struggling with prior range support near 2,100, an area that has now turned to resistance. If this starts to roll over — and particularly if it loses the 10-day, 21-day and 50-day MAs — then pay attention.
Below 2000 could put the 1920s back in play.
Oil
Nice work if you took this setup in oil earlier in the week. As we noted in the video, the $115 to $116 area is not only a notable support/resistance area, but it’s also where the 61.8% retracement comes into play.
This is a major trim zone for longs — I would say ½ to ⅔ of the position personally. Above this area puts $120 to $122 in play. If this current zone is resistance, let’s see if the 10-day and 21-day are support.
No letting a huge winner turn into a loser.
Go-To Watch List
AAPL, TSLA, etc.
This is a notable area IMO.
If these stocks can gain steam above these measures, a further bounce can take place — particularly in the Nasdaq where the momentum has been lately. However, if these stocks start to roll over, it’s important to note where that rollover happened — re: the 61.8% — and we need to start looking for support.
This is more just thinking out loud and using individual leaders as an idea on the “bigger picture” but I wanted to clue you in as to some things I’m watching “on the ground.”
*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 (the most recent of which are noted in bold).
- PANW — Definitely trimming ⅓ to ½ here at ATHs. Would love to see a further push to the upside. $650 is the 161.8% extension.
- 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 at the 10-day ema.
- VRTX — Trimmed ⅓ at/near $250. $254-$255 next trim spot (small). BTD-ers can consider nibbling at the 10-day if we get it. I don’t like adding above my basis once I’m in a trade but may do so if the markets are holding up today. c
- 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.
- COST — Trimmed ½ at $565. Looking at $545 as possible dip-buy spot.
- NKE — Perfect fade from the post-EPS rally. Trim & trail or exit fully. Nice work.
- BMY — Trimmed ⅓ to ½ here. Look for $73.50 to $75 next. b
- 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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