Fed Pivots and Stocks Explode

Green is all we’ve seen

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Our View

Four months ago the Fed was talking about further rate hikes in 2024 and now it’s talking 3 rate cuts. And guess what? That decision was based on all the positive economic reports we have been seeing. Inflation is down — as is gas but food prices remain high.

In today’s Fed turn around, Chairman Powell said: I have always felt there was a possibility the economy could avert recession while inflation came down, and so far that’s what we are seeing.

The result is not guaranteed, but when he said that, the ES exploded higher. At the end of the day, both the ES and NQ closed up 1.4%. The YM (Dow Future) settled at an all-time new high at 37,111, basically 300 pts above the old contract high. All three major indexes are on track for their seventh consecutive weekly gains. Yields on the benchmark bond — which touched 5% just weeks ago — are about a full percentage point lower, closing Wednesday at 4.032%.

Our Lean

The ES has now rallied 655 points off the 4122 low to its recent high of 4776. Amid the move, it’s been up 7 weeks in a row and, more specifically, up 22 down 8 of the last 30 sessions since Nov 1st and up 6 out of the last 6 sessions.

The contract high in the ES is 4808, while the DAX made a new high three days ago. The low in the DAX seven weeks was 14,670, and since then, it has rallied 2,300 points to 16,962. The Dow made a new closing higher and the Nasdaq is within a stone’s throw of its high. Clearly, the bulls have been in charge.

As I said a few days ago, I didn’t expect the ES to go to my target so fast, so I raised it to 4750. Now I’m raising it again, up to 4900.

Our Lean: Yesterday the ES broke out to the upside. While I think we take out the 4808 contracts high soon — or even today — I also think you have to be patient and buy the pullbacks. If the ES gaps higher tomorrow, I can’t rule out selling it with a tight stop, but that only throws me off the trend, which continues to be a buying weakness.

For those of you who like HandelStats levels, here they are:

Upside: Trade and hourly close above 4775.75 targets 4781. Trade and hourly close above there targets 1sd 4788.03. Hourly close above there targets 2sd 4813.06. Hourly close above there targets 3sd 4838.09. More in review.
Downside: Trade and hourly close below Weekly 2sd 4772.06 targets Settlement 4763. Trade and hourly close below there targets 4755.51. Hourly close below there targets 4742.25 then -1sd 4737.97 Hourly close below there targets -1sd Weekly 4715.40 then -2sd 4712.94 hourly close below there targets 4701.75 the 4698.99.***
- Daily close below 4742.25 may bring on a small retracement.

MiM and Daily Recap

ES Recap

The ES traded up to 4709.25 on Globex and opened Wednesday’s regular session at 4700.25. After the open, the ES traded 4698.25 at 9:33, sold off down to 4696.75 at 1:47, and rallied up to 4734.75 at 2:24 after the Fed headlines hit the tape. Yes, if you are wondering how the recap could be this small, it’s because the first 5.5 hours of trade was a slow, narrow, grinding 10-point range trade.

After the 4734.75 high, the ES pulled back to the 4727 level and then made 8 new highs up to 4764.25 at 3:06. After the high, the ES sold off down to 4737.25 at 3:25 and then traded up to 4752.25 at 3:38 as the early imbalance showed $590 million to buy and flipped to $260 million to sell. It sold off down to 4747.50 at 3:53 and traded 4760.25 on the 4:00 cash close. After 4:00, the ES traded 4763.75 and settled at 4763.00 on the 5:00 futures close, up 64 point or +1.43% on the day.

In the end, all I have to say is this ship has sailed. In terms of the ES’s overall tone, it was a mammoth buy program. In terms of the ES’s overall trade volume was higher: 190k traded on Globex and 1.39 million traded on the day session for a total of 1.58 million contracts traded.

Technical Edge

NYSE Breadth: 89% Upside Volume (!)
Nasdaq Breadth: 80% Upside Volume
Advance/Decline: 89% Advance (!)
VIX: ~12.25

ES

Levels from HandelStats.com

ES Daily

Upside: Trade and hourly close above 4775.75 targets 4781. Trade and hourly close above there targets 1sd 4788.03. Hourly close above there targets 2sd 4813.06. Hourly close above there targets 3sd 4838.09. More in review.
Downside: Trade and hourly close below Weekly 2sd 4772.06 targets Settlement 4763. Trade and hourly close below there targets 4755.51. Hourly close below there targets 4742.25 then -1sd 4737.97 Hourly close below there targets -1sd Weekly 4715.40 then -2sd 4712.94 hourly close below there targets 4701.75 the 4698.99.***
- Daily close below 4742.25 may bring on a small retracement.

NQ

NQ Daily

Upside: Trade and hourly close above 16840.25 targets 16875.75. Trade and hourly close above there targets 16884.75 Hourly close above there targets 1 sd 16922.28. Hourly close above there targets 2 sd weekly 16946.42 hourly close above there targets 2sd 17070.31. Trade and hourly close above there targets 3sd 17218.34.
Downside: Hourly close below 16840.25 targets settlement 16774.25. Hourly close below there targets 16740.50, hourly close below there targets 16682.00, hourly close below there targets -1sd at 16626.22, then 1sd at weekly 16624.71. Hourly close below there targets 16611.75-16607. Hourly close below there targets 16537.62, hourly close below there targets 16492 then -2sd at 16478.19.