Our View
Yesterday I said that everything seemed so disjointed that it’s almost frightening. It has this “up for grabs” feeling that anything could happen next.
Crude traded above $110, gold tagged $1,950 — we have been all over the yellow metal trade lately — and the Ruble has collapsed, now worth pennies on the dollar. I really don’t know how Putin gets out of this other than just destroying Ukraine. It all seems so senseless.
Our View is really simple, which is to keep perspective of two things: The trend and the environment.
The trend has gone from “buy the dips” to “sell the rips.” That won’t always be the case and we shouldn’t be bearish at every turn. But my point is rather simple. We have enjoyed a 10+ year bull market where each dip was gobbled up. For the time being and as I have been saying, that trend is nowhere to be found right now. They are selling the notable rallies and until that changes, we won’t either.
On the other side of things, the environment is a mess. We mentioned oil and gold, but the VIX is consistently above $30, which means the moves can continue to be wild and unpredictable. To counteract it, take smaller position sizes, cut your losses when wrong, have a plan and only focus on A+ setups.
Our Lean
Our lean is to sell a higher open or the early rallies. The markets can run but they can’t hide.
Fed Chair Jerome Powell will testify before Congress today to give his semiannual monetary policy update. I don’t see how that can be good.
Daily Recap
The ES traded up to 4399 on Globex, sold off down to 4322.50 by the time most traders woke up and opened Tuesday’s regular session at 4353.
In the opening minutes, it rallied up to 4374.50, which ended up being the regular-hours session high. Just after the first hour of trading, the ES fell down to 4326, just a few points above the Globex low and bounced, rallying 18 handles to 4344. It didn’t last though, rolling over to a new low at 4287.50 as the ES took out the prior session’s low at 4310.
Another rally triggered another sale, with the ES bouncing 36 handles up to 4323.50 before sellers stepped in at 1:00 and drove the ES down to new lows at 4281.50, which came just after 2:00. We were working in roughly one hour increments, as the ES climbed 45 points up to ~4326 shortly after 3:00 before giving traders one last fade.
This one went for 51 points and sent the ES to a new session low of 4275. However, the ES was able to rally at 3:50 as the cash imbalance showed $3.4 billion to sell. It traded 4308.50 on the 4:00 cash close — up almost 30 points from the low made less than 10 minutes prior — and settled at 4310.25, down 60 points or 1.37%.
In the end…oil erupted, financial stocks were weak as rate-hike forecasts declined, and a very high level of uncertainty played out yesterday as Russia pushed forward with its invasion of Ukraine. In terms of the ES’s overall tone, it acted weak when it was going up and was really weak when it sold off. In terms of the ES’s overall trade, 1.808 million futures traded.
- Total Range: 124 points
- H: 4399
- L: 4275
Technical Edge
- NYSE Breadth: 34% Upside Volume
- NASDAQ Breadth: 33.5% Upside Volume
Today we have the ADP jobs report and the Powell testimony at 10:00. That testimony will continue tomorrow and we’ll also get the ISM report that day. On Friday, it’s the jobs report.
In other words, combine those reports/events with a $30+ VIX and these next few days will surely have some wide ranges.
Game Plan
My focus remains on two things: Gold and the S&P 500.
We have been navigating both pretty well and for now, they are my top focus over anything else.
S&P 500 — ES
- Feel free to extrapolate this layout to the SPY.
I usually like to chart up the SPY at some point during the week, but the layout on the ES is working too well right now to change gears. To reiterate, feel free to apply the same levels/measures to the SPY or the SPX, as they correlate incredibly well.
Yesterday we talked about the ABC vs. ABCDE correction.
From the Jan. 24 low to the Feb. high, we saw a 61.8% retracement. From the Feb. low to this week’s high, we’re seeing the same thing: A rebound to the 61.8% retracement.
Last time this happened, we had a bit of a lull where the ES dipped and actually retested the 61.8% before ultimately fading lower. If we get another push to 4,400 and the declining 21-day moving average, bulls need to think twice.
That’s my thought until the longs prove they can take the ball and run with it.
The upside levels are:
- The 10-day ema — bulls need to reclaim this level
- 4343 — O/N high
- 4390 to 4401
- This week’s high is at 4399
- The 21-day sma
Downside levels of interest:
- 4375 to 4378 — Tuesday’s low & the O/N low
- 4251.50 to 4260 — This week’s low and the Q4 low, respectively
- 4212 — January Low
Nasdaq — NQ
- Feel free to extrapolate this layout to the QQQ.
The upside levels are:
- 14,327 — Wednesday’s high
- 14,367 to 14,405 — a wide range, but it has so many measures: the 61.8%, declining 21-sma and the Q4 low.
Downside levels of interest:
- 13,900 — Two-day low and recent support.
- 13,683 to 13,706 — this week’s low and the January low, respectively.
Gold
Our long gold trade triggered yesterday as it went from $1929.70 — the H4 trigger discussed in yesterday’s Game Plan — and rallied through $1950 before the overnight dip. We booked some profit on that run, but I was stopped on the overnight dip and that’s okay. It put money in our pocket and stopped us out at break-even as we slept.
Now we re-evaluate.
At 10:00, we’ll get a new H4 candle. If we can get a tight H4 candle (like we have now), perhaps that sets us up for an inside-and-up rotation back over the 10-ema. Conversely, an inside-and-down rotation can put the $1916 area back on the table.
Ultimately, I’m looking for a continuation to the upside or a dip to the 10-ema on the DAILY chart.
Individual Stocks & Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
The current volatility has created a scenario where attractive individual setups are tough to come by. Plain and simple, the overnight gaps are difficult to work with and the elevated VIX and news-driven headline moves make the indices a more attractive playground for traders at the moment.
SOFI — Earnings
All I’m going to say is, the $13.15 area is a major “prove-it” zone. If they’re going to sell it, this level is key.
Go-To Watch List:
- KO
- ABBV
- BMY
- Defense — RTX, GD, LMT, NOC
- Energy — FCX, CNQ, CVX
- SYY
- TU
- COOP
- MAT
- Gold
- CCK
- BRK.B
- H and MAR
- TECK
Economic Outlook
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