Looking to Buy the Dips

NVDA’s blowout powers markets higher

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

Yesterday’s Lean was way off and I knew it when the ES opened and down-ticked to 4409.50, just below the opening price, and it never printed there again. Plain and simple it was a “buy every pullback” type of trading day.

I knew coming in that the Nasdaq was firm on Tuesday and Wednesday and I actually went home long 2 ES from 4397.50 (which I also screwed up). The moral of the story is two-fold:

Now Nvidia’s results are blowing the estimates out of the water (again). A robust report has that stock up about 8% in pre-market trading and hitting new all-time highs. It’s giving a nice boost to the indices as well. See how that holds up today as a feel for how the market will trade too.

MiM and Daily Recap

The ES traded up to 4425.25 on Globex and opened Wednesday’s regular session at 4409.75. After the open, the ES traded a low of 4409.50 and hugged above the VWAP in a 4 to 6-point range until a buy program hit at 10:00 that pushed the ES up to 4441.50 at 11:34. From there, we fell into another back-and-fill pattern until 12:53 when the ES traded 4445, dropped a few points then rallied up to 4455.25 at 2:01, then sold off down to 4442.25 at 3:02 and rallied up to 4452.75 at 3:45 as the early MIM showed $225 million to sell.

The ES traded 4450.50 as the 3:50 cash imbalance showed $2 billion to buy, traded down to 4442.50 and traded 4448.50 on the 4:00 cash close. After 4:00, the ES traded up to 4451 at 4:10 and dropped down to 4446.50 at 4:13 and roared up to 4469.25 after NVDA reported record revenue of $13.51 billion, up 88% from Q1 and up 101% from a year ago. The ES traded 4475.50 on the 5:00 futures close, up 72.25 points or +1.71% on the day.

In the end, it was full steam ahead. In terms of the ESs overall tone was extremely firm. In terms of the ESs overall trade, volume was on the low side with 1.xx million contracts traded.

Technical Edge

While the August decline was not a horrendous unraveling of the last five months of gains, the mild ~5% dip has a lot of active investors — who are still on edge from the prior bear market — worried it will turn into something larger.

While the decline wasn’t fierce, the S&P lost its 10-day, 21-day and 50-day moving averages, as well as some prior key support areas.

I think we’re in a pretty clear-cut situation in regards to the US stock indices.

Either the indices regain these moving averages and prior support levels or they don’t. If they do regain them, the bulls are back on track and we can use tighter risk parameters — AKA trade against a “line in the sand” — and look for more upside.

If we can’t regain those measures, then we still risk revisiting last week’s low and potentially even lower levels of interest.

SPY

Wednesday had a nice response to Tuesday’s poor price action. If the SPY can regain $445-46 and hold above that area, it’s a greenlight for the bulls in my mind. If they can’t, I’m on the lookout for potential weakness.

Open Positions

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!