Our View
I don’t care what anyone says…we are in the dog days of the summer.
The S&P futures have rallied almost 700 points from the low, have climbed in four straight weeks and the largest one-day decline in the last month was a 46-point fall on July 26th. There have been 12 trading sessions so far in August and surprisingly, only five of them have been gains.
However, the declines have simply been consolidation. Look at the size of the dips: 13 points, 27, 4, 5.5, 5, 17, and 0.25.
On the flip side, the gains have been monstrous: 62.5 points, 85.5, 71.25, 17, and 9.5.
I think the main part is the record level of short sellers and some really cheap stocks have pushed investors back into the stock market. According to S3 Partners, short interest in the U.S. stock market has increased by $125.7 billion, or roughly 14%, from June 16 (one day before the low) to August 12th.
I know the markets are not out of the woods, but I also know the funds have had a good bounce. I’m happy about that. People are under too much stress and I am sure this has been a big relief to a lot of folks. Think of how many people don’t understand the markets, but work and save diligently. Many of those folks likely saw five- and six-figure losses on their accounts. Even if they are unrealized losses, it’s still stressful.
The Fed’s FOMC Minutes are today and I’m not sure there is much we have not heard. Let’s face it, the Fed is going to still have to raise interest rates. The key will be the pace of those hikes. Will the Fed come out hawkish and talk down the rally or add more fuel to the fire?
Our Lean
I still think the ES is overdue for a pullback and today may be the day. Our lean is to sell the early rallies and sell the futures if they hold mid-morning for another bounce.
There has been a very distinctive pattern in the early-day selloffs. They sell off, make a low, and ‘hang’ 4 to 8 points off the low going up and down but with no intention of really breaking down. Based on yesterday’s close I think the odds favor a down day.
Daily Recap
This is going to be short and sweet…the ES traded down to 4283.75 on Globex and opened Tuesday’s regular session at 4286.25. After the opening, the ES sold off down to 4278.75 at 10:36 and made its regular-session low.
Over the next 3.75 hours, it rallied all the way up to 4327.50 at 2:12 — the session high. I’m sorry, but sometimes it gets like this. I know I could add in some of the dips, but after the early low most were shallow 3 to 6-point hiccups on what was a low-volume grind higher.
After the high, the ES get hit by several small sell programs pushing the future down to 4291.50 level at 2:49. It traded 4313.50 as the 3:50 cash imbalance showed $2.7 billion to buy. The ES traded 4307 on the 4:00 cash close and settled at 4310.25 on the 5:00 futures close, up 9.5 points or +0.22% on the day.
In the end, I’ll say it again, we are not here to fight city hall: If the ES and NQ are going up I want to go for the ride. It doesn’t really matter if you think the ES is going down again because right now it’s a steamroller on the upside side. In terms of the ES’s overall tone, it was the early dip, reload, then the buy programs. In terms of the day’s overall trade, volume remained low at 1.32 million contracts traded.
- Daily Range: 48.7 points
- H: 4327.50
- L: 4278.75
Technical Edge
- NYSE Breadth: 65% Upside Volume
- NASDAQ Breadth: 45% Upside Volume
- VIX: ~$20.50
Game Plan: S&P, Nasdaq, MSFT, CI, AR, BMRN
It’s been a while since we’ve tested active support and we’re coming into some “obvious” resistance on the indices. Let’s look for buyable setups as the bulls remain in control.
The one wild card here? The Fed.
The FOMC Minutes are due up today (no rate decision) but the Fed’s rhetoric could be market-moving. Yes, inflation decreased from the prior month, but it’s still very high. The Fed may want to do some more jawboning, which could pressure extended markets.
S&P 500 — ES
Tagged the 200-day yesterday and now flirting with a rotation below yesterday’s low at 4278.75.
A break of this level that isn’t reclaimed puts the 10-day ema in play, which has been very active support over the last month. Just look at where the buyers have stepped in in the past.
We will do what works until it doesn’t.
S&P 500 — SPY
Watch daily-down at $426.88. A break of this level could open the door down to $420 and the 10-day ema.
Being rejected from the 200-day after an epic run feels a bit “obvious” but let’s see how it reacts from here.
Nasdaq — NQ
NQ gave us a doji stick at the 61.8% as it now sits at yesterday’s low during Globex.
Watch Tuesday’s low at 13,522. If this breaks as support, it gives us a daily-doji-down rotation.
That does not mean we go full-on bear. But it does put some caution out there and puts 13,385 in play. That was prior resistance last week and the 10-day ema. For now, we are buyers in this area, which should be active support.
If it fails, it could open the door down the 12,900 to 12,950 area.
AR
We have had a pretty good six-week stretch. The individual stock trades have slowed down as mostly keep riding what we have rather than initiate new positions.
I hesitated with AR yesterday on whether to include it. I opted not to, even though weekly-up loomed. But the risk was quite wide and I just couldn’t put my finger on it.
However, if we get a dip down to the $40.60 area today and it holds as support — that’s last week’s high — then I think we can get long this name and look for a potential trade back to $42 to $44.
CI
Looking for a dip to the 10-day ema here. If it holds, $290 to $292 is the first upside target.
Initial stop will be just below last week’s low at $280.
MSFT
Inside day on Tuesday. Inside daily down likely gives us a pullback to $285 region and the 10-day ema.
BMRN
Looking for a pullback to ~$94. If we get it, let’s see how BMRN holds up. I would love to see a bounce from this area to show that active bulls remain in control. Otherwise, the $92.50 breakout zone may be in play for a retest.
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.
Trade Sheets: Now have 2-3 live trades, all with breakeven or better stop-losses. Great stress-free position to be in as we try to squeeze a bit more of upside out of this move.
- PEP — Have trimmed PEP twice and now there’s a nice breakout underway. Bulls who want to get rid of it can let the last piece go in the $180 to $181 area. I’m more prone to see if we can get a run toward $185 instead unless the overall market unravels). B/E stop
- UUP — $28.60 to $28.80 is ideal trim zone, but bulls can trim ¼ at $28.50-ish if they’d like, as the UUP runs into the 10-day ema.
- $27.95 stop-loss.
- CHNG — Trimmed a little over ⅓ of position into our first target of ~$24.50. Stops up to B/E
- Next target: $25 to $25.30
- O — Hit our second target at $75-plus. Now B/E stop or $72.75 for more conservative traders.
- LNG — I have received a few messages on LNG from the previous update. $155 was the first trim. $160 is a reasonable second trim. $165+ on the rest.
- Raise stops to $157.50
Relative strength leaders (List is cleaned up and shorter!) →
- CNC
- F
- HRB
- BMRN
- APLS
- ENPH
- TAN
- FSLR
- LNG
- PWR
- CHNG
- CELH
- COST
- PEP — trade is live
- UNH
- XLU
- MCK — monster
Economic Calendar
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