The week ahead could be just as rough as the past few weeks. The S&P and Nasdaq closed out last week with the worst weekly losses since the beginning of the Covid-19 pandemic. All three major indexes fell for the third consecutive week. The Nasdaq has fallen four weeks in a row and the Dow posted its worst weekly performance since October 2020.
I have always said that four-day trading weeks can be difficult and that was the case. For the week, the S&P dropped 5.7%, the Dow fell 4.6% and the Nasdaq sold off 7.55%. And last but not least, Bitcoin fell 11% down to $36,689.39, its lowest close since July 25th.
As I said on Friday, the PitBull thinks the Fed is behind the 8-ball and may have to increase its rate increases faster than the March Fed meeting.
With everything going on though — like the market in free-fall — I just don’t know. The Russia/Ukraine situation isn’t doing anything to help matters either.
In addition to the Federal Reserve’s announcement on Wednesday, a fifth of the S&P and nearly 50% of the Dow are set to report earnings. Some notable names include Apple, Microsoft, Tesa, 3M, GE, McDonald’s, and many more.
On Friday I tried to explain the big discount between the ES and S&P cash and I said this usually causes a rally. After a small pop and drop, I said the ES was going to rally to 4485.
Over the next 45 minutes, the ES rallied almost 40 points up to 4487, as part of a 74.50-handle surge. I made money but didn’t take full advantage of my ‘feel’ — I easily could have sold the ES and NQ, but my weakness is risk control. I have a very hard time being short or long with the futures running 20 or 30 points against me because I always think they will keep going.
I would like to say something…
When I started MrTopStep, I didn’t do it to make money. In fact, I get no salary and if I did there would be no money to pay the monthly cost. That said, I love trading and always have. When I ran my S&P desk, I knew that customers needed an outlet that was not part of the CME country club that front ran orders and screwed the customers.
When I say I fought for the customers, I really did. I even got in a fistfight over a bad fill for the PitBull that cost me a $10,000 fine and a week off (lol I guess I needed the vacation).
Looking back, I would not have changed anything (except for a few people that worked for me and screwed me). Such is life. Sometimes when you put all your trust in people they take advantage, but I’m a big believer in what comes around goes around.
The MrTopStep chat has a core of very good traders that are constantly sharing information and trade ideas. Most of the traders are in their late 40s to late 60s. In other words, there is a high level of experience. To me, bigger doesn’t necessarily mean better. I prefer quality over quantity.
Lastly, it doesn’t matter if you are not trading futures to join the MTS chat. A large portion of the traders trade options and stocks. If you join and it doesn’t fit, we give you 100% of your money back. Hope to see you soon!
I expect some type of short-term low either Sunday night or Monday. History tells us when the market falls this fast, rallies occur. Also, things should settle down a bit as we go into the Fed’s two-day meeting.
This does not mean the selloff is over.
The ES was up 27% last year and rallied ~120% from the March 2020 low to the December 2021 high. As scary as it looks now, keep that perspective in mind. The markets will eventually level off, but we are only 14 trading days into the new year.
Our lean is to buy the dips with tight stops and sell any 70- to 100-point rallies.
Friday was a dicey day. We had been under pressure all week and it was Opex day for the January expiration. The ES opened near 4662, rallied 10 points, and then flushed lower by 30 points.
The selling continued through the first hour of trading as the ES cut through Thursday’s low and ultimately bottomed at 4412.50 at 10:22. Five minutes later the ES had already tacked on 30 points — that’s what makes this market so exciting, yet so difficult at the same time.
In all, the ES rallied 74.50 points up to 4487, reversed and that was all she wrote folks.
The index fell in 10 of the next 11 30-minute trading windows until the 5:00 futures close. It was a fairly steady downtrend, with the ES shedding 101 points from 11:15 to 3:15. At 3:50, the final MIM total came out, as the ES plunged 23 handles into 4:00 p.m. close, with the ES finishing at 4385.50.
At the 5 p.m. futures close, the ES settled at 4381.50.
In the End
In the end, Friday was very similar to Thursday and many days this year, with lower prices in the morning, a big rally, and a big late-day failure that only got worse after the MIM came out showing big for sale. In terms of the overall tone for the ES and NQ, it’s very clear to see that the tech weakness is impacting all of the indices. In terms of the ES’s overall trade, volume was high at 2.9 million contracts traded.
The S&P’s best day last week was a decline of 0.97%. You know it’s bad when a near-1% loss is the standout day.
Last night I tweeted that I did not like gap-ups during downtrends when the ES and NQ futures were up about 0.75% on Sunday night. Now they are notably lower in the pre-market.
Maybe that’s a good thing.
A gap-down open at least gives bulls a chance to push the momentum back the other way. That’s rarely the case on a gap-up, as the sellers really lean into the indices and erase the gains.
The further the S&P goes in one direction, the tighter the rubberband gets — eventually, we’ll likely see a snap-back rally.
However, I remain steadfast in one thing: This is not the environment to be a hero in.
Over the weekend, we went over some trade setups and how we were navigating the market. But if this is not your type of environment, just know it. There’s no shame (in fact, there’s great strength) in knowing when to engage and when not to engage with the market.
Down almost 9% and the S&P 500 is on the verge of “correction territory” — a 10%-plus fall from the highs. The Nasdaq is already there, obviously.
Looking at the SPY, we have a gap-fill area near $436, as well as the weekly VWAP measure and the 50-week moving average near $434. If all of these levels fail as support, the $428 to $430 area could be on tap.
That was the fourth-quarter support zone and in the SPX index, that’s roughly 4300 to 4350. While it’s painful, it was always possible we tested this zone. We talked about it roughly a week ago.
I will say, somewhere in this area, I expect the S&P to find its footing. The question (to me) is, how big of a bounce will we see and how long will it last?
For today, it’s somewhat simple: I’m watching $437.95. That’s Friday’s low and last week’s low.
If the SPY gaps below it and quickly reclaims it, we could have a bullish reversal on our hands. Otherwise, I’m going to look for some kind of early low to try and navigate against. If the gap-down is too large, I may sit out completely of the S&P trade.
Lastly, keep in mind that each day we have seen some kind of rally, but each day that rally has failed. Today may or may not be any different, but don’t get caught holding the bag if things go south.
A look at the Nasdaq shows a bit of this morning’s early carnage. With Monday morning’s 170 point dip, the NQ is already undercutting the Q4 lows.
Again, I don’t know when this selling ends. However, gapping down heavy on Monday does seem to be a good thing. I would rather have the NQ down 1.3% ahead of the open than up 1.3%. Many names are down several percent at the open and I’d rather have that than up several percent.
The NQ is down 1775 points from the high on Jan. 12 and has declined in six of the seven sessions since (including today).
Keep an eye on 14,367 — the Q4 low. I know that’s a wide risk of 140 points or so (and likely more by the open), but it wouldn’t be crazy to think we could see a snap-back rally to 15,000 and the 200-day if the NQ can get back above that level and gain some upside momentum.
My biggest focus right now is going to be energy. It’s the one sector that’s been holding up the best and the charts are all intact. If you are trading energy stocks, keep an eye on oil prices.
The wild card? HAL. A few weeks ago, Financials and Energy were leading. Then the banks started reporting earnings and we lost the Fins. HAL reports Monday morning. Will it do what the banks did?
Starting from the top down, let’s get a sector look with the XLE.
Gapping down just below yesterday’s low, let’s see if the XLE can regain $61.78. This level and the 10-day will be important to watch. A regain of them says energy is back in control.
Below both of them could put the 21-day in play.
Exxon has been a leader on the relative strength front, outperforming its peers (which have been outperforming the market).
This one is set to open right near Friday’s low and the 10-day. A break and reclaim could give us a high R/R setup on the day.
Same thing for CNQ.
APA is not as strong as CNQ or XOM. However, down into the 21-day and daily VWAP, I think it may be worth watching on a reclaim of yesterday’s low.
Last but not least, for the growth-type investors who also like quality, it’s hard not to take a long look at NVDA gapping down to the 200-day, lower for four straight weeks and in 8 of the last 9 weeks and is now down more than ⅓ from its highs.
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