Buy Russell, Sell Dow & S&P | Trading RTY, SOFI, PYPL & More
The ES traded up to 4619.50 on Globex, opened the regular session at 4608, ticked up to 4612 at 9:33, and started to sell off. I know “my view” yesterday excluded selling the early rallies (and opted for simply buying the pullbacks), but this is what I put in the MrTopStep chat just before the open:
IMPRO: Dboy :(9:28:57 AM) : I wrote last week that I thought the ES could get to 4620.00 and we have a 19.50 high. We had a big rally FRYDAY and a nice push up on Globex. My gut says we pull back a big then look for some back and fill.
IMPRO: Dboy :(9:32:49 AM) : I do not think the ES goes past 4620 today
IMPRO: Dboy :(9:38:20 AM) : u had to know this [pullback] was coming
Well that’s exactly what happened.
At 10:06, the ES made its low for the day at 4586.50, down 25.25 points and 33.25 points off the Globex high. After the low, the ES made a few attempts to recover 4600, sold off down to a few higher lows, and traded up to 4605 at 1:10.
The morning dip proved to be a great pullback to buy — just like we had talked about in Monday’s Opening Print.
The ES then sold off back down to 4586.75 at 2:20, within a quarter-point of the low. After the selloff, the ES was bid higher by a series of small buy programs, clawing its way back up to the 4598.25 level, pulled back to ~4594, and started moving back up as the early MIM showed $197 million to buy.
At 3:40, the ES started going “bid” and traded 4602 as the final 3:50 cash imbalance showed $1.38 billion to buy and traded 4606 on the 4:00 cash close. The ES went on to settle at 4605.75, up 3.25 points, while the RTY (Russell Futures) closed up 60.7 points or +2.46% on the day. The two were on two totally different levels on Monday, as the latter tries to break out.
In the End
The early buying power was used up pre-open when the futures rallied all the way up to 4619.50 on Globex. In terms of the ES’s overall tone, I think it did what it was supposed to do: It sold off, back-and-filled, and rallied late in the day. In terms of the ES’s overall trade, the volume was low at 1.03 million contracts, but Mondays tend to be like that.
Our View
The Dow traded at a new record high above 36,000 after the open yesterday. The S&P and Nasdaq also hit new highs. After seeing its best monthly performance since November of 2020, the Nasdaq closed up ~56 points for its sixth consecutive higher close. That’s impressive given that Apple and Amazon were red on Friday and on Monday following earnings from Thursday after the close. Remember, the two companies combine for more than $4 trillion in market cap and make up almost 20% of the Nasdaq 100.
According to FactSet data, 82% of S&P 500 companies that have reported so far this season have beaten analysts’ earnings forecasts.
I often talk about how bad the ‘market timers have been at calling the markets. Guys like Bob Prechter and Bert Dohlman (to name a few) have totally missed the rally — both last year and this year. I don’t think paying a lot of money for newsletters that always cast a shadow of doubt works.
Traders are betting on the economic recovery as trillions of dollars are being pumped into the economy. Personally, I don’t think trying to kickstart the economy while significantly increasing the national debt will work in the long run, but it’s working quite well in the short run and I am not here to fight it.
I know that there are two sides to the trading card when you trade futures, but two things sit front and center for me:
- The trend is your friend.
- Do not fight the Fed.
I do not pretend to be a market-timer or an economist. I take a much simpler approach, which is following oversold conditions and volume. If the ES sells off and I see a clear back-and-fill pattern, I buy it and use a stop. In other words, I keep it simple stupid! #KISS
Our Lean
I am still long the ES from 4569.50 and I traded around the position yesterday for over 20 positive points yesterday. This is what the PitBull has taught me to do. I understand that this week we will have the Fed’s two-day meeting and the October jobs report on Friday, but I still think the trend is higher.
Yesterday the big investment firms and ETFs rotated into the Russell and initially sold Dow stocks. It’s my guess they sell the Russell and buy the Dow today. I really believe that keeping track of the rotations is a smart thing to do.
I still think the ES needs a few days of repair. Meaning you can sell the rallies and buy the pullback. It seems to me that the 4580 area or a little below will act as good support. Further, see our ES levels from Monday’s post. A lot of weekly lows are made on Thursdays, so we want to maintain the long position and add to it if the S&P drops.
Note: Over the next few weeks I will be working on a revised MrTopStep Trading Rules 101. There are still some old rules that work but we will be adding the ones that we really feel strongly about. When finished, we will send a separate PDF for you to enjoy.
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Technical Breakdown
Danny spoke about the outperformance of the Russell 2000 futures (RTY) on Monday and they are starting to gain some traction. The RTY has cleared the Q2 highs at ~2,350, as well as the downtrend resistance mark from the all-time high made in Q1 (blue line).
From here, bulls are looking for a larger breakout. As long as the RTY can maintain above the 10-day moving average and October high of ~2,322, then the bulls remain in control.
What we really want to see is a push above 2,369, sending the RTY to new all-time highs. That could open the door to the 2,500 mark and possibly the 161.8% extension near the 2,535 to 2,540 area.
SOFI
SoFi has been a favorite of mine and I was bullish on dips down to the $15 area. There is simply too much growth to ignore. In any regard, shares rocketed higher over downtrend resistance on Monday (blue line). In the process, SoFi gave us a monthly-up rotation over $21.78.
Some “back-and-fill” — as Danny would say — would be productive and allow some of the shorter term moving averages to catch up. Above $21.75 and bulls remain in control. On the upside, I am looking for an eventual push to the $24 to $25 area.
PYPL
No one seems to love PayPal right now, but let’s not forget that this is still a high-quality and semi-mature growth stock.
Above is a daily chart, but last week’s low of $231.71 is on my radar. If we can reclaim this level (especially if PYPL opens below this level and trades up through it), then bulls have a great opportunity on hand for a potential reversal.
In the event of reclaiming last week’s low, short-term bulls can be long against this week’s low. If the trade triggers, I wouldn’t be afraid to book some quick profit if it comes and consider a break-even stop-loss. It’s up to you.
INTU
Finally, there’s Intuit. I have been watching this beast for a little while now, as it ramped through $550, exploded through $580 resistance and topped out near $630. If we get a test of the 10-day moving average, let’s see if it’s a buy-the-dip opportunity.
Volume only averages about a million shares a day, so it’s not the most actively traded or liquid name on the board. However, if it finds a bid near $600, we could see a healthy bounce. Keep in mind, Monday’s action resulted in a bearish engulfing pattern, so if the dip materializes and doesn’t find support, we don’t want to be stubborn with this one.
A deeper break could put $580 back on the table.
Disclaimer: Charts and analysis 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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