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Note: Apologies for today’s delay. More worries out of Europe have triggered some selling pressure just as we were getting ready to send this morning’s OP.
The bailouts are a flyin’!
Late yesterday 11 banks put up $30 billion to bailout First Republic Bank (FRC). Top bank officials met with Treasury Secretary Janet Yellen to formulate the plan. Bank of America, Citi, JPMorgan and Wells Fargo each pitched in $5 billion, Goldman Sachs and Morgan Stanley put up $2.5 billion and the balance came from five other banks that gave $1 billion each.
According to a source close to the discussions, the effort was spearheaded by Janet Yellen after she spoke to JPMorgan’s Jamie Dimon on Tuesday to kick-start an effort to move funds to the failing First Republic.
The pact was an effort to protect the entire banking system from widespread panic. Clearly the “too big to fail” banking system is protecting the smaller regional banks but my question is, how many other smaller banks are out there that will need cash infusions?
My guess is there are a lot more out there. For now, the markets are loving the action to shore up FRC and Credit Suisse. Bill Ackman’s take:
The result is that FRB default risk is now being spread to our largest banks. Spreading the risk of financial contagion to achieve a false sense of confidence in FRB is bad policy. The SIBs would never have made this low return investment in deposits unless they were pressured to do so and without assurances that FRB deposits would be backstopped if it failed.
The press release announcing the $30B of deposits raised more questions than it answers. Lack of transparency causes market participants to assume the worst. I have said before that hours matter. We have allowed days to go by. Half measures don’t work when there is a crisis of confidence.
Heading into today’s Triple Witching Expiration, it’s important to know that today is one of the largest ever expiration ever, as $2.9 trillion in options expire. I said early in the week that I thought the ES could trade 4020 if it really pops and now I think the options squeeze could push the ES all the way up to 4060 and possibly beyond.
But now there’s the issue of the European Banks — again. Ackman said it well that “Half measures don’t work when there is a crisis of confidence.”
Opex has the potential to distort reality a bit today and can either mask investors’ true desire — giving us chop instead of a big up or down move — or it can exacerbate the volatility.
Without the bailouts and help to the banks, the last couple of days would have gone much differently for the market. I know I said “sell the rallies” earlier this week and that did work for a while, but fighting the Fed is a tough, if not impossible endeavor.
From yesterday’s low to the closing high, the ES rallied more than 100 points.
Our Lean: I have 3950 as a big level on my charts and we are pulling back fairly hard now. I think a dip to this area can be bought the first time around, but we’ll have to see how strong the bounce is. If it’s a strong rally, it could be a “buy the dips” kind of day. Otherwise, we may have to wait until the afternoon for a higher R/R opportunity.
I still think there will be further weakness going into the end of March. As always, levels below with charts.
The ES traded up to 3947.50 on Globex and opened Thursday’s regular session at 3901. After the open, the ES traded down to 3895, traded up to 3922.25 at 9:58, sold off down to 3898 and then rallied up to 3978 just before noon. From there, it dipped 3958 at 12:15 and ripped higher by 38 points to 3996.25 just after 1:00.
The ES coughed up 25 points, falling to a late-afternoon low of 3971 before finding its footing and ripping into the close. At 3:50, it traded ~3994 as the MIM showed $550 million for sale, traded up to 3996.50 and closed at 3994.75. The ES traded up to 4000 after 4:00 and settled at 3996.25, up 69.50 points on the day or 1.77%.
In the end, the short squeeze was all buy-stops and buy programs. In terms of the ES’s overall tone it was firm. In terms of the ES’s overall trade, volume was lower at 2.45 million contracts traded.
FSLR gave aggressive buyers an opening yesterday between $200 to $202. Conservative buyers have a daily-up potential after another inside day. If the market is going to stay hot, FSLR should tag along for the ride (further update below in the “Open Positions” tab).
Pure “March Madness” would be to unwind all of yesterday’s gains and go weekly-down into the weekend. Not a prediction by any means, just an observation.
The ES is coming into the session under some pressure, after tagging 4009 during Globex. Bulls did a great jobs reclaiming 3947 to 3960, opening the door to 4000, which it hit late yesterday.
~3950 is key. That’s the 50% retrace from the Globex high to yesterday’s low, the Feb low and the 200-day moving average.
Downside Levels: 3962-ish, ~3950 (big), 3920.
Upside Levels: 4000 to 4010, 4020-25, 4060.
$393 to $394 was huge this week and it was reclaimed on Thursday. Now under pressure, the SPY is back below this area on Friday morning.
Ideally, we will get some support right near current levels, around $391. That’s the 10-ema on the 4-hour chart and the 50% retrace of yesterday’s range. A bit more pressure could get us $390.
A bounce could get us back to the $393 to $394 zone where it would be another big test.
Upside Levels (SPY): $393 to $394, $396.50, $397.50.
Downside Levels (SPY): $390 to $391, $387.75, $386.25, $384.
Same as SPY, with following levels:
Upside Levels (SPY): 3935, 3965, 3980
Downside Levels (SPY): 3915, 3900, 3965, 3945
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 B/E or better stops.)
** = previous trade setup we are stalking.
MRK — Long from ~$110 and (disappointing action as it was oh-so-close to our first target, missing by a few dimes) — Ideal stop is clearly defined near $105. Initial target for ⅓ trim is $112.50.
Natural Gas, UNG or /NG — First target hit at UNG ~$10 and NG at 2.95 to 3.00.
Now /NG needs to hold the $2.40 to $2.50 mark in order for bulls to stick with this one.
Trim NG at $2.80 to $2.90. UNG at $9.25
FSLR — long from $202 — Upside levels are $210.75, $214 and potentially $217+. If you are long from $200 to $202, can consider a small trim at daily up at $206.67. Stop at $198
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
Today’s Guest Post is from our friend Cary at Artac Advisory. He will be a regular contributor on Friday’s. His note on crude oil is below, along with an accompanied video, found here.
“WTI Crude Oil is poised for continued selling into later Q2 following a weekly settlement today below 70.98, then anticipating 53.87 over the next 2-3 months. Inversely, a weekly close today above 70.98 would signal 83.00 within 2-3 weeks – able to contain buying through April and significant upside pivot point into summer.”
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 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!