Bulls look for direction as earnings season begins.
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Our View
The CPI data is now out of the way and we don’t have to worry about the Fed for a couple of weeks now. However, after an in-line inflation report, the market is now pricing in a more than 90% chance of a 25 basis point increase in February.
While the Fed continues to talk about getting interest rates up to and above 5% and keeping them there to quell inflation, investors are seeing that we are likely near the end of the rate-hiking cycle.
X
Now we have earnings season kicking off today with the banks. So far, all the big names are down, including JPM, BAC, C and WFC. I am most interested in hearing JPM CEO Jamie Dimon’s comments, as he seems to take the best pulse of the economy.
Our Lean — Update on CPI
The ES rallied into the 8:30 CPI report, faded on the report, ripped higher and then settled into a trading range that lasted several hours. Yesterday’s Update was a balance between broad commentary and specific levels.
I said that, “I think there could be some selling pressure off the open, but there’s the potential that the markets move a lot higher today” — and that’s basically what we got. It just took a couple hours to get there.
The lone chart we included was on the 15-minute window as the 200-sma held as support a second time after the CPI release.
What is my point with all of this? Most times, you do not know for certain what is going to happen. You can only take a shot on the ES, SPY or SPX when you feel like the odds are in your favor. For us, the report felt good enough to buy if we could get a discount on the S&P and when combined with the charts, this trade made sense.
If you missed it, it’s okay. There are always more trades. The important thing to remember is, if you miss something, don’t try to “get your money back” from the market. It has a way of taking even more. If you feel the urge to do so, get up and go for a walk or play with the dog until your ideal trade setup comes back.
Our Lean: The ES had a nice afternoon rally, but faded late. Now under pressure during Globex is giving bulls pause and bears a little bit of ammo. Keep a close eye on the 3954 to 3957 area. As you can see in the chart above, those levels marked the post-CPI lows.
A fade into this area could attract a bounce. If now, 3920 to 3930 is in play. On the upside, I have some resistance at 3985. A rally through this area could put 4000 in play, then 4020.
Remember, we are going into a long three-day weekend. That will affect volumes today.
MiM and Daily Recap
The ES traded up to 4021.50 and down to 3954 on Globex Thursday morning after the CPI release came out and traded 4003.50 on the 9:30 futures open. The ES traded straight down to 3957.50 in the first 25 minutes of trading. Just before 10:00, it started a move right back to 4003.50 in a matter of 25 minutes. From there the ES traded back down to 3976.5 at 11:00 am and it traded back up to 4017.50 at 1:15 there broke sharply, all the way down to 3988.75 in a matter of 15 minutes again.
It found its footing and rallied up to 4018 just after 2:00, then traded 3991.25 at 3:45. The ES traded 4000.50 as the 3:50 cash imbalance showed $710 million to buy and traded to 3403.50 on the 4:00 cash close. After 4:00, it traded in a 4-handle range from 4000.75 to 4004.75, with the final print of 4002 at the 5:00 settlement, with the ES up 13.5 points or 0.34%.
In the end, the ES took a while to get going, had a strong rally and lost steam late in the day. In terms of the ES’s overall tone, it left bulls wondering if we are going to get a December CPI repeat. In terms of the ES’s overall trade, trade was high, with more than 2 million contracts trading hands.
Technical Edge
- NYSE Breadth: 78% Upside Volume
- Advance/Decline: 76% Advance
- VIX: ~$19.50 — Sub-$20 and just hit its lowest level since April.
After a better-than-expected CPI reading in December, the S&P futures promptly faded almost 400 points or nearly 10% and settled into that prior 3800 to 3900 trading range.
I’m not saying we’re setting up for a 400-point fade necessarily, but instead, I’m just saying that bulls ought to be aware that price action trumps all — even when the economic reports seem to be in their favor.
S&P 500 — ES
As Danny mentioned, the ~3955 area is key (yesterday’s post-CPI low). If we trade there, let’s see if the ES can generate a bounce.
However, a break below this zone opens the door down to 3920 to 3928 (the 10-day, 50-day, a key pivot and last week’s high). That zone must hold for the bulls to remain in control.
Below it puts 3900 in play, then 3891 (this week’s low) and 3988.
On the upside, 3985 and 4000 are key. Then 4021 and 4030.
SPY
Running into the 200-sma, the $396.31 gap-fill level and the 61.8% retracement, the SPY is on watch for a possible disappointment.
Let’s see if buyers come in around yesterday’s low of $392.42. If they don’t, it opens the door down to $390, which has to hold for bulls to remain in control.
Below that opens the door to $386.50 and $383.80.
That all said, if the SPY can take out yesterday’s high, $400 is in play, then potentially $410.
QQQ
The QQQs are rallying into prior support, along with the 21-week and 200-week moving averages, and the 50% to 61.8% retracement zone.
If the bulls can clear it — meaning over $282.70 — the Q4s highs are in play.
For now, keep an eye on yesterday’s low at $273.75. A break of that puts the 10-day and last week’s high at $270.15 in play.
ULTA
As you know from our Relative Strength list below, Ulta has been a top focus for awhile now. Keep an eye on the low-$480s.
I want to be long on a test of the 10-day moving average. If this area holds as support, $490 to $495 is our first target, then $500. On the downside, $475 seems like a reasonable stop-loss at this point.
DAL
Down on earnings this morning, let’s see if we can get a test of the 10-day ema (active support) and the prior b/o level in the $36 to $37 area. An entry close to the gap-fill — $36.07 — is most ideal.
If this area holds as support, $38 to $38.50 is a good trim spot.
A lot of Relative Strength in airlines lately.
Personally, I prefer a smaller position size, so I can have a wider stop-loss. I like $34 as my stop, as it keeps it below the larger moving averages.
Open Positions
A note: After talking to some members, I want to make the setups a bit more clear. We are a trade-ideas service, but want to make entries & exits simpler to understand. We will be sending more updates, a few educational pieces and looking for a way to make our setups more clear in how we are managing them.
- Numbered are the trades that are open.
- Bold are the trades with recent updates.
- Italics show means the trade is closed.
— Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be, B/E or better stops.
From this latest round, that includes TLT, DE and FSLR.
- TLT — Down to ⅓ after TLT’s strong push to $105 on Friday. Raising stops to $100 or $101 and (I personally) am just leaving a runner against the stop.
- Now you can handle this however you want. $106.31 is a gap fill, so is $108.16 and there’s always the declining 200-day sma for the optimists.
- DE — Trimming down to ¼ on any push over $440. B/E stop or consider $425 as a new stop. Congrats! Hit 439.88, close enough for some, but will keep the update here.
- COP — Long from $119, the 2x weekly-up. $124 to $127 could be a reasonable trim spot. (Keep the 50-day in mind, so maybe ⅕ to ¼ trim there just for lunch money).
- $115 Stop. Maybe consider getting down to a ½ position if we get back to our basis. I don’t normally like to do that, but yesterday’s action was tricky.
- FSLR — ½ position, long at $157.75 — Third trim hit as FSLR has run to ATHs. Can be out (I’m out) or carrying just ⅕ to ¼ of a position now.
- BRK.B — ½ position — Strong close yesterday and now we are looking at a weekly-up/2x monthly-up rotation.
- Stop at $312.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
- SBUX — nicely weekly-up setup after 10-week ema reset.
- DE
- SMCI
- TJX, ULTA — looking for pullback here to active support (10-day) given the bearish update from LULU.
- CAT
- Airlines — AAL, DAL, UAL
- CAH
- MRK
- BRK.B
- LNG
- LMT, RTX, NOC — RTX best of the bunch
- MET — weekly
- GIS
- HON — weekly
- FSLR — $140 is the 21-week sma and retest of prior resistance
- XLE — XOM, CVX, COP, BP, EOG, PXD — (Weekly Charts)
Economic Calendar
