Geopolitical Turmoil Hangs Over the S&P 500
Can stocks find a low in October?
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Our View
I re-read Friday’s OP a few times and I will be totally honest, I have been following and trading it. Yeah, I know I am not giving you exact points to buy and sell and I know it’s not always 100% right, but like the OP has been saying, sell the early rallies overall.
As we all know, the Israeli/Hamas war is expanding into Gaza. Right now the only thing we need to pay attention to is the war and if other actors join in, the US could get dragged in also. From me to you, if terrorists hit the US, the S&P would get smoked. Losing an aircraft carrier and a large loss of US military personnel would be a horrible situation. I think once it starts, it won’t stop.
JPMorgan CEO Jamie Dimon gave a stern warning to investors on Friday, saying, “Now may be the most dangerous time the world has seen in decades.” He added that the wars in Ukraine, Israel and Gaza “may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”
Those comments came as the bank reported a top- and bottom-line beat, but also reported a 6% drop in investment banking revenue in the third quarter and as investment banking fees fell by 3% due to lower equity and debt underwriting activity. Further, deposits fell by 4% from a year earlier during the third quarter. Dimon said, “I’m less concerned about the economic effect than obviously the geopolitical,” and went on to say, “Currently, US consumers and businesses generally remain healthy.”
Our Lean
The Israeli ground invasion may be a weight on the stock market, but what’s not is the fact that the ES is trading at the exact same prices it was in 2021. From the first Friday on Oct. 1st 2021 through Oct. 6th, the ES hammered out a low near 4275 — basically the same prices as today and that was two years ago.
It’s also worth noting all the inflation that was hitting in Q4 2021, too.
As long as the US and Iran don’t get into a direct confrontation, the ES could rally. Here is a strange fact: For the last three years in a row we have made a low the first week in October and then rallied.
Our Lean: There is an extremely high level of anxiety and uncertainty, two things the S&P dislikes. All weekend long the news channels were non-stop coverage of the Israeli’s military operations to shrink the Gaza. The futures are up 12 points on Globex. My lean is to sell a gap up or the early rallies. As the day wears on, all the invasion talk should weigh on the index markets.
As for levels:
Upside: Trade and hourly close above 4372 targets 4378, then 4385, then 1 sd at 4387.76. Hourly close above there targets 4395, then 4412.48, then 2 sd at 4423.53. DAILY close above 4412.48 targets much higher.
Downside: Trade and hourly close below 4366.75 targets 4:15 settlement 4352. Hourly close below there targets 4339, then -1 sd at 4316.24. Below there targets 4314.25, then 4304.75, then 4288.50, then -2 sd at 4280.47.
MiM and Daily Recap
ES 15-min recap
In pre-market trading, we had what we call a death rally, trading 4365 at 6:30 am and rallying all the way up to 4407.75 at 9:40 on Friday’s regular session opening. From there, the ES sold off down 4352.75 at 11:55, traded up to 4376.50 at 12:30 and then proceeded to sell off to the lows of the day at 4340.75. From there, the ES had a knee-jerk rally to 4361, in 10 minutes and proceeded to trade in a 15-handle range for the rest of the day.
The early imbalance showed $300 million to sell and the ES sold off down to 4345.75 at 3:44 and then traded 4352.25 as the 3:50 cash imbalance showed $1.58 billion to sell and traded up to 4359.25 at 3:43. The ES traded 4357.50 on the 4:00 cash close and after 4:00, the ES traded down to 4350.50 and traded 4351.50 on the 5:00 futures close, down 29.25 points or -0.67% on the day.
In the end, the markets got spooked as Israel prepared its troops for a ground operation into Gaza and heightened terror alerts around the world. In the end, the price action was deplorable. In terms of the ES’s overall trade, volume was on the high end with 289k on Globex and 1.8 million on the day session for a total of 2.089 million contracts traded.
Technical Edge
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NYSE Breadth: 42% Upside Volume
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Nasdaq Breadth: 37% Upside Volume
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Advance/Decline: 38% Advance
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VIX: ~$18.75
ES
Levels from HandelStats
ES Daily
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Upside: Trade and hourly close above 4372 targets 4378, then 4385, then 1 sd at 4387.76. Hourly close above there targets 4395, then 4412.48, then 2 sd at 4423.53. DAILY close above 4412.48 targets much higher.
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Downside: Trade and hourly close below 4366.75 targets 4:15 settlement 4352. Hourly close below there targets 4339, then -1 sd at 4316.24. Below there targets 4314.25, then 4304.75, then 4288.50, then -2 sd at 4280.47.
NQ
NQ Daily
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Upside: Trade and hourly close above 15163.25, targets 15217.75, then 1 sd at 15376.62. Hourly close above there targets 15297, then 15328. Hourly close above there targets 15376.62, then 2 sd at 15429.90.
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Downside: Trade and hourly close below 15144.50 targets 4:15 settlement at 15106.5. Trade and hourly close below there targets 14981.25, then -1 sd at 14944.80. Hourly close below there targets 14863.25, then -2 sd at 14783.10.
Guest Post
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JPM — Many are long from $143-145. This is a longer term swing. Trimmed $153s, then $157.50+ on 7/24.
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Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
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If worried about a larger correction, can sell/trim north of $150. Below entry and no need to stick around in JPM.
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Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.
** = previously mentioned trade setup we are stalking.
Economic Calendar
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!
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