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Our View
Yesterday, Our Lean said to sell the 40 to 50-point rallies and called out 4020 to 4030 as resistance. The ES topped out at 4017 — 38 points off the low — and rolled over. Then the overnight low at 3979 gave out. Then the prior day’s low failed. Simply put, the bears have been in control.
The S&P continues to fail at support and build more levels of resistance on the way down. On the plus side, the decline is decelerating, but the ES is still working on its fifth straight down day with the jobs report on tap tomorrow.
If I’m looking at the action from a bull’s perspective, I can’t say it looks healthy. It has knifed through too many key support levels. That said, at some point, I think there will be a bounce. Will it come ahead of the jobs report or because of it?
Our Lean
We’re simply not seeing support come into play, but the pace of the decline has been slowing.
We’ve already seen the S&P break below its 50-day moving average and we’ve seen the 10-week moving average act as resistance on Monday and Tuesday. The 50% retracement didn’t buoy it either, nor did the VWAP measure from the 2022 low.
Ladies and gents, that’s a lot of support levels to cough up in just a couple of days.
Our Lean: The ES visited the 3920 area at the Globex low. I’d like to see a retest of that level and see how the 3900 to 3920 area holds up as support. It feels gutsy, but I would feel okay dipping my toe in here for a long — even if it’s with the micro contracts (the MES rather than the ES).
That’s a big prior resistance zone that turned to support in late July, while the 61.8% retracement comes into play around 3904. Bret will lay out the technicals below.
Daily Recap
The ES opened at 4004, up almost 20 points from the prior close, and rallied 22 points where it was promptly rejected by the Globex high near 4020. The ES fell 45 points down to 3972 at 11:00, bounced 26 points to a lower high just shy of 4000 at noon, and rolled over.
On the ensuing selloff, the ES made new lows by falling 32 points down to 3966 around 1:45, bounced 11.50 points then sold off down to new lows again at 3956.50 following a 21-point skid. After a 27.50 point rally, the ES was trying to find some late-day steam, but it was twice rejected by 3984.
When the MIM grew from $1.2 billion for sale to a whopping $4.2 billion for sale, the ES crumbled 22 points in the final 10 minutes. It closed at 3955.75 at 4:00 and settled at 3960.50 at the 5:00 close, down 31 points or 0.78% on the day.
- Daily Range: 65.25 points
- H: 4018.25
- L: 3953
Technical Edge
- NYSE Breadth: 33% Upside Volume
- NASDAQ Breadth: 49v% Upside Volume
- VIX: ~$26.50
- Interesting that the VIX fell yesterday.
Game Plan: S&P, Nasdaq, Individual Stocks
In each of the last two sessions, the S&P gapped higher at the open. For some of our longer term readers, you may remember that I do not like gap-ups in a downtrend.
They are just asking to be sold. At the very least, they are cash-flow shorts to fill the gap. At most, they continue to flush to the downside. That’s the problem we have had the last two days as the S&P continues to bleed lower. Today’s a gap-down and at the very least, that lowers the bar for the bulls to hurdle. I’d rather buy into the hole than on a gap-up.
The Nasdaq and Russell (the risk-on plays) are back to being relative weakness leaders, which doesn’t tell a great tale.
After four straight down days, let’s look at where some support may come into play.
S&P 500 — ES
We have been rally-sellers, but folks, we don’t wait until the market is oversold and down 300 points over five straight down sessions and start looking to sell into the hole.
If it continues lower, then so be it, but from an R/R perspective, I want to see a rally not a dip.
As you can see on the chart above, the ES is already having a response from the 3920 area. That was a key resistance zone flipped to support in July. Just below it is the 61.8% retrace.
I think losing 4000 and its bevy of support levels was a huge blow to the bulls’ case. If it’s reclaimed by the end of the week, then there may be something to work with, but as it stands, that action was ugly.
That’s pretty much it: Let’s see if we can get a bounce out of the 3905 to 3920 zone. I hope we retest the Globex lows in the regular session to give us a better R/R.
On the upside, I’m watching 3965 to 3975 as resistance. If we somehow clear 4000 today, 4015 to 4020 is a big area as well.
SPY
Because the SPY maps the regular-hours data and not the 23 hour data like the ES, we don’t have a clear support to bounce off just yet.
The 3920 support level for the ES is roughly the $390 for the SPY, which isn’t being tested just yet.
Trading $392-and-change in the pre-market now, see if the SPY can regain $395 to $396. That’s the two-day low — and it very well could reject the SPY.
If we do get a bit of a short-covering rally, let’s see if they can get this thing back up toward $400.
Nasdaq — NQ
The case has been laid out for a test of the 12,100 to 12,200 area and here we are. This is make-or-break territory now.
The July low following the breakout is 12,072. The 61.8% is 12,089. This zone need to hold for the bulls and quite frankly, gives us a good dip-buying opportunity from a risk/reward perspective.
Either we dip to this level and it holds or it folds and we can bail with minimal damaging.
On a bounce, I’d love to see 12,250+
Nasdaq — QQQ
$294 to $296.50 is critical. We’re near the latter now in the pre-market.
Hard to imagine a full-on breakdown without some sort of bounce, but we’ll see. Keep an eye on the area. On the upside, $300 needs to be reclaimed. Bulls can’t even think about getting back in control until that happens.
Above that and $303 to $308 becomes a huge zone.
Bonds — TLT
I’m not sure how else to be more negative on the bonds. We have been going over it for weeks now and called the bearish action a “warning sign” for equities.
The TLT is now gapping lower this morning and taking out last week’s low. If they rally off the open, keep an eye on $110.86. That’s last weeks’ low. This level needs to be reclaimed. If not, the 2022 lows could be on deck near $108.
If this continues to push lower, I can’t see how it will be a positive for the Nasdaq.
Go-To Watchlist — Individual Stocks
*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.
For those that want to preserve their gains, feel free to exit any position below, as many are a ½ positions or less.
CNC — what the hell was that yesterday? Action was wild. We’re down to just three longs now and being patient after 6+ weeks of register-ringing.
- UUP — Down to ¼ position as we hold for potentially higher prices. Raise stops to $28.40 to $28.50. Look for $30 on the last piece.
- CHNG — second target of $25 hit. Now down to just ⅓ position. Take all profit here or move to a B/E stop and look for $25.50.
- Still looking for $25.50 on the upside, but can be back up to a ½ position or more $24.73. $24.25 is a reasonable stop-loss for those that added.
- OXY — I like the look here. If we bounce, I’m looking for $75 to $76 as our first trim spot. On the downside, I actually like this one a dip down to $66-ish. So consider leaving room to add.
Relative strength leaders (List is cleaned up and shorter!) →
- XLU
- XLE
- OXY
- CNC
- F
- BMRN
- APLS
- ENPH
- TAN
- FSLR
- LNG
- PWR
- CHNG
- CELH
- COST
- UNH
Economic Calendar
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