There is an old saying, don’t count your chickens before they hatch. Up to this point, no matter how big or small the rally has been, it has failed. One guy I talk to thinks the ES will never be higher today while the PitBull is looking for another rally. What I think is not to over-expect.
We all know the S&P was oversold and in the MrTopStep forum, I talked about all the buy stops building above multi-day resistance. That helped ignite a move up to 3751.25 and I’m quite happy with the levels we laid out yesterday.
It’s integral to trading: Moving level to level.
For example, 3660 held as support yesterday. That opened the door to 3675 (Globex high), 3700, then the 3730 to 3745 zone. Give these a read if you missed yesterday’s squeeze and try to learn from the morning setup!
The latest problem? What’s going on in England.
One banker is quoted as saying, “It was not quite a Lehman moment. But it got close.” This all goes back to my “disjointed” observations, as bonds, currencies, stocks and other assets have had wild and outsized moves. It doesn’t feel right.
Our Lean — Danny’s Take
Update: After yesterday’s gains, the ES took a ~75-handle haircut in Globex and bonds are back under pressure.
As long-time members know, I normally do not like to change this section once I write it (and I usually do so the night before). But we have to be flexible in trading.
Today is T+1 as the quarter-end nears. I have become desensitized by all the 30 and 40-point moves that come out of nowhere — that’s just the environment we’re in. Yesterday’s 3751 high was no joke, nor was the closing rejection.
Our Lean: The S&P is at a key area now and with the early Globex pressure, I think we’re in a sell-the-rallies tape again. Look for a sellable bounce after the open.
The ES had another night of wild swings, the future traded up to 3681, dropped down to 3613 and opened Wednesday’s regular session at 3670.25.
After the open the ES dropped down to 3652.25 at 9:34 and then traded up to 3667.75 at 9:5. After the ‘pop’ the ES sold back off below the vwrap down to 3667.75, back and filled for the next 10 minutes, and then ripped up to 3686 at 10:01 and as fast as it rallied it sold back off down to 3658.25 at 10:10. The low set up a huge rally up to 3728 at 1:18. After the high the ES sold back off down to 3709.75 at 1:53 and then rallied up to new high at 3738.50 at 3:08.
In the end, I am not sure what the Brits were thinking when they were talking about implementing tax cuts while raising interest rates but buying bonds helped sparked a big rally on Wall Street. The ES was oversold and looking for a reason to rally and the Brits gave it.
In terms of the ES’s overall tone, with the exception of a few small pullbacks, it was firm. The markets had all the reason in the world to rally, oversold, T+2, short books buying protection, cash buyers, and endless buy stops. In terms of the ES’s overall trade, volume was a little lower at 2.7 million contracts traded.
Daily Range: 138.25 points
NYSE Breadth: 89% Upside Volume (!)
NASDAQ Breadth: 85% Upside Volume (!)
Game Plan: S&P, Nasdaq
Today’s a real test for the market as investors fret over the situation in England. This type of volatility in bonds and currencies creates the risk for “something to break.” And if it does, that creates issues elsewhere — like the equities market.
We almost had a 90/90 breadth day yesterday, but the late-day dip held us in check.
Now under pressure this morning — along with bonds and AAPL — it’s a prove-it-or-lose-it situation for the S&P.
Yesterday the OP was titled “We’re Getting Really Oversold but It Doesn’t Feel Like a Bottom” and today’s action makes it feel even more so like this may be the case.
The S&P is almost acting cruel at this point. Notice how on Tuesday the SPY broke the two-day low and traded to new 52-week lows. Yet, it closed back above $363.
Wednesday’s action was similar, but going the other way. The SPY cleared the three-day high but then closedjust below $370.60.
So now the range builds even more and $363 support and $370.60 resistance becomes even more pronounced.
Trading $366.50 at 8:30 a.m. ET, let’s see the reaction if we rally up to $370.50-ish. Does it reject price or accept it? If the SPY is accepted and clears this area, yesterday’s high of $372.30 is in play, followed by the gap-fill level about $1 higher.
Watch $363 for support. Below it puts this week’s low in play at $360.87.
S&P Futures — ES
Yesterday’s plan proved to work almost flawlessly:
“If 3660 can be reclaimed and maintained, it puts the Globex high in play near 3675, then 3700+. On the daily, resistance has been obvious too, in the 3730 to 3745 zone. If we rally back through 3700 and hold above this level, then this zone is paramount. Active resistance is near the 10-day moving average.”
We outlined 3745 because this area — 3740 to 3750 — was a big prior support area in July. That’s why we added, “If we see this zone, I will treat it as resistance until proven otherwise.”
Rejecting the ES today amid overnight selling and the day session will be paramount to whether the bulls fight back and make a push toward yesterday’s high or if the ES rolls over and makes new lows.
ES — The Trade
Above is a 30-minute chart of the ES, as we have retraced 50% of yesterday’s rally.
If we slide a bit further, I want to see how the 3655 to 3660 area holds up. That’s a bit past the 61.8%, but it’s the area where the ES launched out of yesterday morning and it’s where multi-day support has been.
If this area holds, maybe the bulls have something to work with, with 3675 to 3680 being an upside area of interest on a bounce, followed by 3700 to 3710.
If 3655 to 3660 doesn’t hold, 3640 is in play, +/- a few points. Below that opens the door to 3613.
Nasdaq — NQ
Keep it simple: 11,250 is key. Below that and failure to bounce could put pressure on the NQ down to the recent low at 11,141.
Keep in mind the NQ has not made new 2022 lows.
Go-To Watchlist — Individual Stocks
With the VIX at $30+ I am not looking at many individual stocks at this time. My long-term setups are here. I do apologize about this, but again, I’d rather keep my foot on the brakes and keep looking for high R/R trades on the indices than rack up losers on the individual stock front and publish them just for the sake of doing so.
We’ve been trying to put out some helpful content surrounding other topics in the meantime, but my biggest hope is that the lack of individual stock setups says something about the current trading environment and has kept your account protected!!
*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.
All done with the UUP/DXY dollar trade for now. Currencies are getting volatile and we want to book our gains and hold tight.
Relative strength leaders →
ENPH — holding the breakout near $269
LNG — nearing the breakout near $150
MCK — holding the breakout near $340
CAH — holding the breakout near $64 and the 50-day/10-week moving averages
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!