Danny’s View: You Call That A Pullback?

Our View

I think most people thought we would see a down day, but the S&P just doesn’t want to go down. Maybe Opex is helping prop it up because even after yesterday’s morning dip, they momentarily rammed the ES higher after the Fed Minutes before it faded again. However, it didn’t make new lows. 

That said, I do think there will be a more sustainable correction. I am not going to overdo this, we all know the ES was overdue for a down day or two, but Friday is the August options expiration and we’re still in the middle of summer. So if we do trade down today I think we could see another late-day bounce. 

Our Lean

I’m not getting the feeling we are about to sell off hard right now. If anything, we may just be due for a shakeout. 

Keep in mind: The uptrend is still intact. The ES sold off down to 4255 on Globex and rallied up to 4292. I’m not sure if we will pull back again, but I think the 4255 low could end up good support. If it breaks, the 4221 level will be.

 It’s all about the August options expiration tomorrow. 

My lean is to buy the pullbacks. 

Daily Recap

The ES made a high at 4315 and dropped down to 4266 on Globex before opening Wednesday’s regular session at 4269.25. After the open, the ES traded up to 4284 at 9:36 and then sold down to 4266.25 at 10:40, bounced 10 points then traded down 4263 at 10:57. 

At 11:50, it made new session lows at 4255 but bounced back into a 5-point range between 4275 and 4280 ahead of the 2:00 Fed Minutes release. After the release, the ES shot up into the 4290s, then pressed up to 4305.25 — the session high — and up more than 30 points from the 2:00 low. 

After the high, the ES traded back down to 4273.50 at 3:15 and for the next 30 minutes it back and filled at the vwap. The ES traded 4275 as the 3:50 cash imbalance showed $123 million to buy and traded 4276.50 on the 4:00 cash close. After 4:00, the ES traded up to 4281.50 and settled at 4280.75 on the 5:00 futures close, down 27 points or -0.63% on the day.

In the end, the ES did sell off, but it was by no means a kill job. In terms of the ES’s overall tone, it was weak but acted better than the NQ. In terms of the ES’s overall trade volume was higher at 1.59 million contracts traded. 

• Daily Range: 60 points
• H: 4315
• L: 4255

Technical Edge

• NYSE Breadth: 20.2% Upside Volume (!)
• NASDAQ Breadth: 31.4% Upside Volume 
• VIX: ~$20

Game Plan: S&P, Nasdaq, MCK, APLS

We’ve had a lot of events happen this year that not a lot of traders were around for the last time they happened; it’s been hectic. Like seven straight weeks of declines, for instance. The last time that happened before 2022 was in the dot-com bear market and before that, in the 80s. 

But because so much has happened this year, we have this sort of perpetual feeling of “What now?! What now?! What’s next?!”

It’s okay for the market to have a slow — dare I say boring — climb higher right now. It’s okay for the pullback to be modest and slow and for support to come into play where it’s supposed to. 

Now that that’s in writing though, maybe the SPX will cough up 100 handles and the VIX will rip. But it doesn’t feel like that’s going to happen. Right now, we’re in a low-volume grind as people take some time off and spend the waning bits of summer with their families. 

Let’s look for some support. 

Note: Watch CI and MSFT for the buy-the-dip setups we highlighted yesterday. 

S&P 500 — ES

Yesterday, 4278.75 to 4285 was a key zone of resistance. Let’s see if the ES can reclaim this area, which would unlock a potential push to 4300 to 4305+

On the downside, keep an eye on yesterday’s 4155 low. A break of this level puts the active support via the 10-day ema in play. I’m a buyer at this level. 

S&P 500 — SPY

Tried to rally and failed, while $426.50 to $427 was resistance. If the SPY can get above and stay above this level, perhaps $429 to $430+ is possible. 

On the downside, watch $424.50 — yesterday’s low. A break below it that isn’t reclaimed could pressure the SPY down to the 10-day. Like the ES, this has been active support and I want to be a buyer. 

I do have a small short position in SPY as a hedge against some of our swing longs. I’m looking to cover on a dip into the 10-day. 

Nasdaq — NQ

Basically got our 10-day test yesterday. Those who missed their chance could look for an undercut of yesterday’s low (13,406) and a reclaim of this mark. 

I actually love that type of trade setup, as we can use the new low as our stop-loss. Sometimes it takes a couple attempts to get it right, but these types of cash-flow trades can be great risk/reward setups — especially if we get an early dip from today’s Globex bounce. 

MCK

MCK has treated us so well this year. We have extracted multiple trades out of this one and my only regret is failing to realize just how far a breakout could fling this stock. Keep in mind, we were buyers in the $300 to $305 zone last time around. 

Here, I’m looking for a reset back down to $360 and the 10-day ema. 

This is a low-volume vehicle though — not my favorite. I usually size smaller as a result, because it can fluctuate a lot. If it’s too low of volume for you, look for reset trades in MSFT, SPY, etc. 

APLS

Let’s see how it handles a dip to $65 and the 10-day ema. There I’m a buyer. 

LOW volume though, so take note of that and avoid it if that’s against your volume rules. 

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.

Trade Sheets: Now have multiple trades all with breakeven or better stop-losses. Great stress-free position to be in as we try to squeeze a bit more of upside out of this move. 

1. PEP — Have trimmed PEP twice and now there’s a nice breakout underway. Bulls who want to get rid of it can let the last piece go in the $180 to $181 area. I’m more prone to see if we can get a run toward $185 instead unless the overall market unravels). B/E stop
2. UUP — got our ¼ to ⅓ trim and now back above all the daily moving averages. Can either trim a little more at $28.70 to $28.75 or wait for the gap-fill at $28.82.  
   1. $27.95 stop-loss for aggressive traders, B/E for conservative traders. 
3. CHNG — Trimmed a little over ⅓ of position into our first target of ~$24.50. Stops up to B/E
   1. Next target: $25 to $25.30
4. O — Hit our second target at $75-plus. Now B/E stop or $72.75 for more conservative traders. 
5. LNG — going for $165+ on the last ⅓ position. cRaise stops to $157.50
6. BMRN — long from $94.14 (last week’s low). $96.50 to $97 is the first target. $100 is the second target.
   1. Initial stop-loss at $92.50

Relative strength leaders (List is cleaned up and shorter!) → 

• CNC
• F
• HRB
• BMRN
• APLS
• ENPH
• TAN
• FSLR
• LNG 
• PWR
• CHNG
• CELH
• COST
• PEP — trade is live  
• UNH
• XLU
• MCK — monster

Economic Calendar

A couple of Fed talkers today around noon. Beware of that.

As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.

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!