Our View
Everyone is talking about Powell’s speech and no one is talking about today’s options expiration.
Well with a multi-day 217-point selloff and yesterday’s rally, it may be time to start looking at it. Obviously, yesterday’s late rally pushed the futures up to the 4200 level and today there may be more of the same.
As I have explained, I am a cautious bull and that means being diligent. I’m not necessarily convinced that the high is in for this move and today could go a long way toward proving or disproving that notion. We could certainly go lower and hit a patch of volatility in September and October, but I don’t think the S&P is as weak as some traders would like you to think.
In the best of all worlds, it would be great that the ES range-trades and then starts going back up and rallies into the end of the year…but there is still a ton of headline risk. And lastly, when is the Fed game going to end? I am shocked and amazed that the Fed is raising rates at a historical pace while carrying $10 trillion in debt and doing just a little tapering.
Let’s look at some charts.
Fed Balance sheet, above. Money Supply below.
I’m a trader, not an economist. I take these things into consideration, but I am a price-action/flow guy first. So I would really appreciate it if you have an opinion on this subject, that you will leave a comment.
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Our Lean
The 50% retracement of the recent drop and pop came in at 4219. I’m not sure there won’t be a buy program/buy stop run right into it — especially if it’s late in the day and the MIM is a couple of billion to buy.
Several months ago, the ranges were 150 points a day and recently the daily trading ranges have come down significantly. So has the VIX. There is no doubt the most recent trend is up and the lower volume has clearly been favoring the upside, but DeMark has today as a big sell day. He’s smarter than me, but I’m not sure the ES is just going to roll over that easily.
Our lean is to sell the early rallies and buy the pullbacks keeping an eye on how well the ES holds under the vwap. Get out and avoid the midday chop and come back for the final 90 minutes. I want to point something out: When I say buy a pullback of 30 to 40 points and the high is 4187 on Globex and the day-session low was 4147.50…then ding! ding! ding! We got what we were looking for! We do not have to be bound by the 9:30 to 4:00 pm session.
Lastly, I really hope to see everyone at the September 10th MTS webinar, the lineup is really some of the best work we have seen and we will be sharing all of it with you. We will have a link soon!
Daily Recap
The ES traded up to 4187.75 on Globex and opened Thursday’s regular session at 4157.50. After the open, the ES sold off down to 4147 at 9:35, then a China and Fed headline hit, pushing the ES straight up to 4176.25. After the high the ES dropped 9.75 points down to 4167.50 which set off a series of higher highs up to 4185 at 10:47.
That high set off a 28-point drop down to 4156.50 at 11:26. The ES traded back up above the vwap at the 4165.50 level, dropped down to 4153.25 at 12:50 and the ES went from doing a small sell program right into a buy program at 1:48, pushing up 4176.75 at 2:34. After some consolidation, the ES continued its push higher, trading 4193 as the 3:50 cash imbalance showed $2.1 billion to buy and traded 4202 on the 4:00 cash close. After 4:00, the ES settled at 4195 on the 5:00 futures close, up 58 points or 1.4% on the day.
In the end, one of the simplest of all indicators has worked like a charm and that’s figuring out the daily ranges. Lately, that’s been buying the 35 to 40-point dips. However, yesterday’s rips were not like some of the weak ones we have been seeing. The buy programs were timed into the upside stops all day long. In terms of the ES’s overall tone, it was firm, and why not, everyone has already sold into Powell’s speech. In terms of the ES’s overall trade, 1.575 million futures traded, which is about average for what we have been seeing.
- Daily Range: 59.75 points
- H: 4202.75
- L: 4143
Technical Edge
- NYSE Breadth: 85% Upside Volume (!)
- NASDAQ Breadth: 74% Upside Volume
- VIX: ~$22
Game Plan: S&P, Nasdaq
Does the Powell speech matter for today? Some traders have everything staked on this event, while others consider it a bunch of hot air.
I’m in between. The Fed is not the “end-all, be-all” force in the market. However, they do play a pivotal role when it comes to money supply and liquidity, two driving forces in equity markets.
However, just like an earnings event, the reaction to the news is likely more important than the news itself.
The caveat is, today’s action could be messy and it may take a little time to sort out the real “reaction.”
S&P 500 — ES
Yesterday we rallied right back into the 10-day and 21-day moving averages and 4200 — just shy of the 50% retrace near 4220.
We can bounce around a bit, but my two main areas of interest are 4100 to 4110 on the downside and 4300 to 4310 on the upside.
If we rally to 4310 and the 200-day moving average, it’s critical that bulls break the ES out of this zone. Otherwise, this level is resistance until proven otherwise.
On the flip side, bears are looking to break the 4100 zone. If they can do that without the market reversing back to the upside, then I do think we could see 4000.
In a nutshell, bulls need 4300+ and bears need sub-4100.
S&P 500 — SPY
For the SPY, those levels are $430 on the upside and $410 on the downside.
I know it’s a wide range, but that’s just the reality of it.
Nasdaq — NQ
Yesterday, we finally got a range break, calling for a move over the two-day high of 13,020. That put the 13,150 to 13,200 zone in play, with the NQ going out at 13,156 yesterday.
Anyone who lined their pockets with 100+ points yesterday is able to coast into today feeling pretty good.
Now we have to see if the NQ can push out a bit more upside into the 13,280 to 13,390 zone. Above it puts 13,500+ in play. The fact that it remains below the 10-day and 21-day does have me a little leary, though.
If we pull back, the 12,825 zone becomes critical. Below it will open the door to 12,500.
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.
- UUP — Down to ¼ position as we hold for potentially higher prices. Raise stops to $28.40 to $28.50. (Fed is possible catalyst for volatility today).
- CHNG — second target of $25 hit. Now down to just ⅓ position. Take all profit here or move to a B/E stop and look for $25.50.
- Still looking for $25.50 on the upside, but can be back up to a ½ position or more $24.73. $24.25 is a reasonable stop-loss for those that added.
- AR — Out ⅔ of position after hitting our second target at $44. B/E stop. Might as well look for $46.50+ for the rest.
- O — long from $70.50, as mentioned in yesterday’s midday update. $72.50 is our first upside target. $68.75 is a reasonable initial stop-loss.
- HRB — long from $46.75. Initial stop-loss at $44.75. Can make a minor trim at $47.50 just to get some risk off the table, but really looking for $48.25+
Relative strength leaders (List is cleaned up and shorter!) →
Top 5:
- HRB
- PEP
- XLU
- CI
- MCK
The Rest:
- CNC
- F
- BMRN
- APLS
- ENPH
- TAN
- FSLR
- LNG
- PWR
- CHNG
- CELH
- COST
- UNH
Economic Calendar
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