I think it’s gotten a lot tougher to trade the ES. Over the last few weeks and despite calling it correctly in the Print, I have been losing money. Seeing the setups is one thing, trading them is another and you have to be in the right headspace to execute well. I have tried to get away from trading the NQ because it’s been so whippy, but the only way to trade the ES is to follow the NQ.
The S&P 500 used to be the big dog, but as rates go higher the Nasdaq has taken over the top spot. There seems to be no shortage of market-leading tech stocks under fire. Yesterday it was Amazon, Apple, and Tesla — the latter of which made new 52-week lows.
I know folks think the ES is going to rally into the holidays and it very well may, but to me, there is just too much uncertainty out there. It’s like we are sitting around waiting for the next hand grenade to go off. Mike Wilson of Morgan Stanley — who has a pretty good track record, by the way — is calling for a 20% decline in the SPX in 2023, with EPS of $185 vs. $230 consensus estimate.
Maybe the ES breaks out of its current range after the Minutes confirm what we already know… that the Fed is not done raising rates.
Our Lean — Danny’s Take
We all know when the Fed raises interest rates it takes a while for it to actually kick in to the economy. This was taken from the Wall Street Journal and I think it best sums up how this all works.
The Nobel Prize-winning economist Milton Friedman famously argued that “monetary actions affect economic conditions only after a lag that is both long and variable.” Since it can take years before the full effects of tightening become apparent, the Fed tends to move incrementally, adjusting policy gradually while scrutinizing economic data for signs of its effects.
In that sense, you might think after four straight 75 bps hikes and signs that inflation is starting to reverse, the Fed would be looking to pump the brakes. They are, but only to the tune of (likely) hiking by 50 bps in December.
I continue to think we are in for the long hull and from the way Powell talks, the hikes are not over.
Our Lean: The ES trading ranges have narrowed and were only 33 handles yesterday. The Fed Minutes is Wednesday at 2:00 ET. It’s possible the ES just continues its choppy, low-volume, grind. As volume drops, ‘thin to win’ could take over as we’ve seen many times before.
Buy the early pullbacks and sell the midday rallies. And who’s paying attention to the MIM? We continue to see it rack up the buy orders. 19 of the last 22 closes have ended in favor of the buyers, with a total $26 billion being put to work on the buy side in that span.
This is not something to be overlooked and is summed up nicely below.
MiM and Daily Recap
Last 20 Sessions
The ES opened Monday’s shortened holiday week at 3958.50 and quickly rallied up to 3969.50 and then sold off down to 3954.75 in the first 6 minutes of the day. It then traded back down to 3937.50 at 11:57 and rallied up to 3959.25, 4 points above the VWAP. But like many of the short-covering rallies recently, the NQ reversed and then quickly popped and the ES rallied up to 3968.50 at 1:41 and dropped down to 3952.00 at 3:27. On the 3:50 cash imbalance, the ES traded 3956.50 and the MIM flipped from $235 mil to sell to $1.038 billion to buy and traded 3858 on the 5:00 futures close, down 16 points or -0.49% on the day. The NQ closed down points or -1.02%.
In the end, it was the same picture: The NQ steering the ship. In terms of the ES’s overall tone, it was weak but thin. In terms of the ES’s overall trade, at 3:43 relative volume in the ES was only 66%, and total volume was low at 1.138 million with 211k coming from Globex making total day session volume 927,000.
NYSE Breadth: 38% Upside Volume
Advance/Decline: 46% Advance
We’re getting a little dollar pressure this morning, which is A. good for anyone who sold the UUP or DXY yesterday and B. good for equities if that trend can extend a bit further to the downside.
We do have a nice little bull flag in the S&P to work with, but without upside rotation, it’s meaningless.
Last Thursday gave us a nice trade on the long side, but “the fuse has gone out” a few times since. Let’s look at the charts. Remember, lots of Fed Head speakers today and then FOMC tomorrow.
The “open trades” section continues to grow a little longer, but we have many positions with B/E stops or better — a sign that the tape is acting healthier.
S&P 500 — ES
Yesterday’s dip-buy below Friday’s low yielded a setup with 5 points of risk and gave bulls a nice little cash-flow trade to start a short week.
But notice how Danny mentioned the tightening ranges. When we zoom out a bit, you can see that little bull flag right down to active support via the 10-day ema, while 3920 to 3940 continue to hold as support.
On the upside, let’s see if we can clear yesterday’s high of 3982. Above that put 3990 to 3994 resistance in play, then 4010+
On the downside, 3937.50 and the 10-day are key. If we revisit this area, maybe we can get another cash-flow reversal to work with.
SPY — Daily
Yesterday’s high of $395.82 is the key.
If SPY can clear this level, then $397.66 is back in play, then $400, and last week’s high of $402.31.
On the downside, it’s pretty damn simple: The $390 level and 10-day ema have to hold for bulls to remain in active control.
Dollar — UUP
Reasonable to trim into today’s gap-down fade, especially if we see $28.90 or lower. At this point, no reason to allow this to become a big loss as we have a good entry, so B/E stop or one just above yesterday’s high of day.
(levels below in Open Trades section).
What a mess TSLA has become, as it continues to grind out new 52-week looks. When we zoom out, I’m seeing a chart that has two prior breakouts over $150 and $167.50.
In between those two levels is the 61.8% retracement, 50-month and 200-week moving averages, and the monthly VWAP measure.
At least for a bounce, I would be surprised if this area didn’t hold. Obviously the closer to $150, the better, but this zone is something to watch, IMO.
*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.
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.
CCRN — down to ⅓ or less & raise stops. – Exit at $36+ or consider holding for $37.50 to $38q
QQQ — down to ⅓ or less & B/E stop ($281)
DIA — down to ⅓ or less & B/E stop ($333). Trim more at $340+
Gold — Can use a stop of $1730, as we got an excellent entry. Trim ⅓ at 1762. And ¼ to ⅓ at 1770.
UUP — Cover ⅓ at $28.90. ¼ at the gap-fill of $28.84. Stop at $29.13 or B/E.
For DXY, a small trim at $107.25 (optional), but certainly a trim at 107. Ultimately we’re looking for $106.50. Stop at 108.05 or B/E.
Disclaimer: Charts and analysesare 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!