For Now, the Bulls Keep Defending the S&P 500

Eventually the tides will shift. Is it today?

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Our View

As we go into the end of the week, one has to wonder what’s going to stop this non-stop melt up in the S&P and Nasdaq. The next two big events are this week’s June Quad Witching expiration and the Q2 rebalance (which I am already hearing some oversized dollar amounts) at the end of the month.

On March 13th, the ES traded down to 3919.25. On April 3rd, it traded up to 4190.25, 271 points off the low, pulled back to 4113 on April 26, rallied up to 4227 on April 28 and dropped back down to that 4112 area on May 4th.

It was that double bottom that set off a 28-session, 328-point rally up to the 4440 level. The 50% retracement is 166 points or the 4272 area. I thought we would see an uptick in volatility with the CPI data and Fed meeting this week, but after the drop it was business as usual — aka they bought yesterday’s dip.

I can’t say what the ES will be doing today as the post-Fed trade can be volatile, but I do know one thing: Overbought doesn’t seem to matter.

Our Lean

I know I may regret this, but this bull is a bull. Yes there was a nice short sale after the Fed headlines hit at 2:00, but it ended up being a “buy the break” event.

Simple math says that the higher the ES goes, the higher the chance of a pullback. However, I think you’re supposed to play off yesterday’s low as support and go back to buying the 10- to 30-point selloffs. At least until this trend fails, that’s the play.

Our Lean: Sell the early rallies and buy the pullbacks or just be patient and buy the ES after it drops 5 to 10 points under the VWAP. We are pulling back into the open. Seeing how the market reacts to the dip could help set the early tone.

On the upside, I’m watching 4440, 4465 and 4475. On the downside, I’m watching 4400 and yesterday’s Fed day low at 4383.50. Then 4370 and 4355.

MiM and Daily Recap

The ES traded up to 4428 on Globex and opened Wednesday’s regular session at 4418.50. After the open, the ES sold off down to 4413.75, then rallied up to 4432.25 at 10:24, dipped slightly and then ran up to the 4439.50 level at 11:27. From there, it traded back down to the VWAP at 4424.25 at 12:07 and then down to 4418.75 at 1:24.

After a small round of back-and-fill, the ES dropped down to 4408.50 at 2:00:43 as the Fed news was live, up-ticked slightly and then sold off down to 4401 at 2:01:20. After the low, the ES bounced back up to the 4413 area and then dropped down to 4383.50 at 2:08, rallied up to 4401.75, dribbled its way back down to the low by two ticks at 4384 at 2:26 and then chopped its way back to 4415.50 at 2:48. After that, the ES back-and-filled around 4407, rallied up to 4418.50 at 2:53, dropped back down to the 4407.50 area and shot up to 4429.50 at 3:08.

The ES sold off down to 4404.75 at 3:16, rallied up to 4423.50 at 3:28 and traded 4407 as the 3:50 cash imbalance showed $840 million to buy. It dipped down to 4389.75, climbed up to 4420 and traded 4419.50 on the 4:00 cash close. After 4:00, the ES rallied up to 4427 and settled at 4424.75 on the 5:00 futures close, up 6.75 points or +0.15% on the day.

In the end it was a rally, a drop and then a pop. In terms of the ES’s overall tone, the selloff created another buying opportunity. In terms of the ES’s overall trade, volume was high at 2.1 million. When you take out the 184k from Globex and the ESM/ESU spreads, total volume was only xxx on the day session.

Technical Edge

Readers, I want to remind everyone of one thing. After we have nice runs (be it in the indices or with the individual stock setups), it’s always prudent to pump the brakes.

That’s even more true when we go from a good stretch into a busy week like this one, which had the CPI on Tuesday, the Fed on Wednesday, retail sales today and quarterly opex tomorrow. As I do my scans each day, there is a lack of high-quality R/R setup at the moment.

Also remember the big expirations like in March, June, September and December can take more than a day to play out, so be aware of the potential choppiness the rest of this week.

S&P 500 — ES (September Contracts)

The 4420-25 zone remains key. That’s the 261.8% extension of the current range and the 61.8% retracement of the bear market decline.

Thought Out Loud: Can we get a dip back down to the 10-day ema, last week’s high and the 50% to 61.8% retracement zone between 4373 and 4357?

SPX

The SPX closed its gap at ~4340.

As for today’s levels:

SPY

SPY closed its gap at $433.88.

Would it be so bad if we got a dip back into the $429 to $431 area? That gets us the 61.8% retracement, the prior breakout level and the 10-day ema.

NQ

IWM

So far, the $184 area has been support after the Russell’s big upside rip. Let’s see if the IWM can hold this area and the 10-day ema on a pullback.

That’s 1880 on the RTY, for what it’s worth.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN and CVS.

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Disclaimer: Charts and analysis 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!