The markets held EXACTLY where they needed to yesterday.

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Don’t Forget: The Long-term performance of the S&P 500, some longer-term setups, and 5 red flags that showed up before the 2022 bear market

Our View

There are multiple reasons for the stock market to go lower — yet it’s holding up. Yesterday we focused on the German’s hoarding cash to pay for possible energy blackouts, today it’s about Fed Governor Bullard’s comments about higher interest rates.

For months the public has been talking about a slower pace of rate hikes and the Fed stopping at 5% despite Fed Chairman Powell telling the public that he won’t stop raising until he finishes the job. Yesterday, James Bullard threw cold water on that 5% hope, saying “the policy rate is not yet in a zone that may be considered sufficiently restrictive,” and using the so-called Taylor Rule for monetary policy, Bullard suggested the proper zone for the Fed funds rate could be in the 5% to 7% range, higher than current market pricing and what unofficial Fed forecasts indicate. 

He went on to say that so far the change of policy has had a “limited” effect on inflation. 

The weakness again showed up in the Nasdaq, which was down over 1.5% at one point but short-covered and then pulled back again late in the day. I have never felt that the Fed was going to slow down its rate hikes, but Bullard made it very clear the path the Fed is taking as it races to slow inflation and the oncoming recession that I feel is unavoidable. This is on top of US credit card debt hitting its highest level in over 20 years. 

As I have said many times, there is no one-and-done; it’s going to take time and the best advice anyone can give is to buckle down. Don’t take on any major financial decisions right now. 

Our Lean — Danny’s Take

It has been an exceptionally long week that has seen some of the narrowest ranges and lowest volume in months, but I think that may change today. On a short-term basis, the ES and NQ are oversold, and as we said yesterday to get long. 

That all said, our lean is to buy the early pullbacks. That does not rule out selling some rips, but the ES has flushed out a lot of sell stops and in most cases — especially after a down week — the ES could start reaching for the buy stops. Further, it’s the FRYday November options expiration. 

Yesterday we were buyers of 3920 and boy did it pay off. The ES futures and SPY is pushing higher this morning, so let’s lock in another tranche of profits for anyone still carrying. 

Below are some levels to keep an eye on. 

intra-day containment 3997.75 on the upside, 3867 on the downside. 

Resistance: 4012 (minor), 4023.50 (minor), and 4050 (major). 

Support: 3965 (minor), 3936.25 (minor), and 3915.

MiM and Daily Recap

UpDownNet Flow
Last 20 Sessions173$22.49 Billion
Last 1091$14.9 Billion
Last 541$8.1 Billion

The ES traded down to 3912 on Globex and opened Thursday’s regular session at 3917, overnight inventory was 100% short. The ES made an early day low of 3913.50 and traded up to 3962.50 at 1:24 and sold off down to 3941.50 an hour later, then traded down to the 3929 area going into 3:30. 

The ES traded 3949.25 at the 3:50 MIM cash imbalance showed $1.45 billion to buy. The ES traded 3955.50 on the 4:00 cash close and settled at 3961 on the 5:00 futures close, down 13 points or 0.33% on the day. 

In the end, it was a whip-saw trade, down in the first part of the day, rally midday into the afternoon, selloff, and rally late when the boys with the better seats showing up to front run the MOC. In terms of the ES’s overall tone, it was follow the leader, i.e. the NASDAQ. In terms of the ES’s overall trade, volume was low at 1.51 million contracts traded.

Technical Edge

  • NYSE Breadth: 40% Upside Volume
  • Advance/Decline: 34.5% Advance 
  • VIX: ~$23.60

I am going to keep this very short and very sweet because we bought with a high R/R setup in the indices yesterday and got paid nicely in the afternoon and are getting paid even more today. 

If long QQQ from yesterday’s setup near $280, please consider trimming half or more into today’s $287 to $288 range. Trim more at $290+

If long SPY from yesterday’s setup near $390, please consider trimming half or more into today’s $397-ish range. Trim more at $400+ 

If long DIA from yesterday’s setup near $333, please consider trimming half or more into today’s $337 to $338 range. 

S&P 500 — ES 

There are days to hunker down and trade hard. And then there are days to let the market work for you because you have a good cost basis after good prep work. 

Today is one of those days. 

The ES held exactly where it needed too: Active support via the 10-day ema and the 3920 pivot level. 

Pushing 3990+ now, traders can manage however they’d like. Stick to the trend and look for a push over 4000 or take advantage of a 40-handle overnight rally and exit the rest. I’ll leave it up to you — and see you Monday. 

ES — Close Up

The ES is riding the 10-ema higher on the 30-min chart and is now running into yesterday’s high. The 61.8% retrace of this pullback is up at 3998, giving a little more weight to 4000. 

Over 4000 and last week’s high of ~4010 is on the table, along with resistance from Tuesday as 4015.

On the downside, let’s see if 3980 is support. 

SPY — Daily

If long, trim $397.50, then $400+

Gold — GLD

Risk-averse traders looking for a long position in gold may consider waiting for the daily setup. 

For more aggressive buyers, we have the H4 (4-hour) chart of the GLD ETF shown above, with back-to-back tight candles. 

If the GLD opens around $164 and then rotates through $164.11 and stays above this level, maybe we can get a quick trade off on the long side. 

Go-To Watchlist

*Feel free to build your own trades off these relative strength leaders*

  • Numbered are the trades that are open. g
  • Bold are the trades with recent updates. 
  • Italics show means the trade is closed.

Open Positions

  1. TLT — Trimmed into the $100s yesterday. Should be down to ½ or ⅔ positions from here. If it’s got real strength, it will hold $100 as support, and push into $104 to $105 next. B/e or better stop. 
  2. CCRN — down to ⅓ or ½ position. $34.75 is next trim spot. 
    1. Personally using $31.50 as my stop (up about $1.10 from my basis).
  3. QQQ — long from $281. Trim to half or less at $287+ (premarket is fine)
  4. DIA — long from $333. Trim to half or less $337.50. (premarket is fine)

Relative strength leaders →

  1. LNG 
  2. CAH 
  3. TJX — new highs
  4. SBUX
  5. AMGN
  • CCRN
  • REGN
  • CI
  • MCD
  • ENPH, FSLR — solar has strength 
  • VRTX
  • UNH
  • MRK
  • SBUX

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.
Disclaimer: Charts and analyses are for discussion and education purposes only. I am not a financial advisor, do not give financial advice, and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!



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