Nasdaq Rebalance Takes Shape With Earnings Underway
Investors are focused on tech earnings and the Nasdaq rebalance
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Our View
The Nasdaq rebalance has shown itself throughout the week, but come Friday it will be in full swing. Despite not posting a lot of details of the ‘special rebalance’ and not wanting to copy what everyone else has, I decided to share Reuters’ story — because the situation is unique and interesting.
The long and short of this is there is too heavy of a concentration of big name tech stocks in the Nasdaq 100 that make up almost half of the weighting of the index. I actually remember the other two times this happened in 1998 and 2011.
I think they started rebalancing late last week and for sure we have seen a lot of it so far this week, but the big reveal will be on Monday to find out what the new weightings are.
“A blistering rally in growth and technology stocks has lifted the Nasdaq 100 index by 37.5% this year. That compares with a 14.8% gain for the benchmark S&P 500…Microsoft, Apple, Nvidia, Amazon and Tesla combined account for 43.8% weight in the index, according to Refinitiv data as of Monday’s close. As part of the rebalance that will come down to 38.5%.
Wells Fargo index strategists estimate Starbucks, Mondelez, Booking Holdings, Gilead Sciences, Intuitive Surgical, Analog Device and Automatic Data Processing will see their weight increase in the Nasdaq 100 index.”
Our Lean
I was right about selling the early rallies and after the ES rallied up to its 4609.25 high, the NQ was already going offered. After some up and down ticks in the ES, it finally gave way.
I think we could see more of this today.
Get this. According to Stock Trader’s Almanac, “For the 54th time since 1950, DJIA has recorded a daily winning streak of at least eight days…Historically, daily winning streaks of 8-trading days or more have been bullish even after they ended. Over the 1-, 2-week, 1-, and 3-month periods after the daily winning streak ended DJIA was higher, 98.1%, 98.1%, 96.2% and 90.6% respectively.”
Our Lean: I knew you were not supposed to get long above 4600 the first time up and that was right. As for today I can’t rule out an early rip, but if it does and we see the same type of price action — ES bids and NQ offers — it’s our guess we go back down.
We are looking for the PitBull’s Thursday low before Friday’s option expiration but we also think there will be big two-way flow.
As for levels, on the downside I’m watching 4581-4578, 4573, 4563, 4554 and 4545. On the upside, the levels are 4608-4610, 4618-4623, 4638, 4645 and 4655-4658.
MiM and Daily Recap
The ES traded down to 4582.25 on Globex and opened Wednesday’s regular session at 4595.25. After the open, the ES rallied up to 4608.50 at 10:13, hung near the highs until 10:54 when the ES dropped down to the 4590.75 level at 10:55. After the low, the ES stutter-stepped up to a new high at 4609.25 at 12:04, back-and-filled in a 3- to 5-point range and then dropped down to the 4591.25 level at 1:10 and then back up to the VWAP at 4598.50 at 1:52.
The ES sold back down to 4588.50, rallied up to 4605.50 at 3:20, traded down to 4596.75 at 3:35 and traded 4600.00 at 3:44. The ES traded 4598.50 as the NYSE 3:50 imbalance showed $848 million to buy and traded 4597.25. on the 4:00 cash close. After 4:00, the ES traded down to 4591.25 and settled at 4595.75 ,up 12.75 points or +0.17% on the day.
In the end, I was right about selling the rallies and not being long the ES the first time above 4600. It was an early buy program and then continuous sell programs until 2:30 when the sell programs ended and the buy programs started to hit. In terms of the ES’s overall tone, it was on the weak side. In terms of the ES’s overall trade, volume was steady; 192k traded on Globex and 1.27 million traded on the day session for a total of 1.462 million contracts traded.
Technical Edge
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NYSE Breadth: 66% Upside Volume
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Advance/Decline: 63% Advance
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VIX: ~$14
As long-time readers will know, the day I miss my charts, I must really not be feeling it! Quite ill at the moment, although I did get an update on our open positions and a look at the S&P.
SPY
Sticking with the 30-min chart & 4-hour 10-ema overlay (the blue dashed line). If we get a bit of a flush lower today, the $452.50, then $451s could be in play as potential support zones.
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Upside Levels: $456-56.50
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Downside Levels: $452.50, $451.75 to $452
The risk we run on the daily chart is breaking yesterday’s $454.11 low and failing to regain it, opening up more downside risk:
S&P 500 — ES Futures
I don’t know that we’ll see a dip down to ~4530, but it’s the first “big” spot for dip-buyers to step in. That said, it would require a fall of more than 1.2% from yesterday’s close, which some may see as unlikely in the current tape.
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Upside Levels: 4600-10, 4620
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Downside levels: 4580-82, 4559-4568, ~4530, 4493-4503
SPX
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Upside Levels: 4578-80, 4600
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Downside Levels: 4557.50, 4534, 4512, 4500-05
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.
Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN, CVS and AMD.
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DOCN — Long from $38.25 — Small trim at $39.75 to $40 and a second trim above $40.75. Trimmed more between $45 and $47 and down to ⅓ at $49.50+
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Should have us down to a ⅓ position. I think we may be able to get $53+ out of this.
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JPM — Retested the breakout zone and long. This is a longer term swing. Many are long from $143-145. Still carrying ¾ to ⅔ of position against a break-even stop-loss.
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Down to ½ if we see $157 to $157.50+
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TLT — gap-filled at $99.65 — got our first trim at 100.75+ and second trim between $101.50 and $102 and finally, a trim at $102.70 to $103. Down to runners or ⅓ position. If ⅓, can look to trim down to runners above $103.50
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ARKK — Long from ~$46 — trimmed near/at $50. Still carrying ⅔ to ¾ of position. Trim at ~$52
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Ultimately, this will be a dip-buying name.
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HSY — Longer-term swing. Want to see this one hold $235-36, but willing to be patient.
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DAL — long from $47.20 (daily-up) and trimmed at $48. Trimmed down to ½ at ~$48.50. $49 is technically the next trim spot, but aggressive bulls can just go for the post-earnings highs near $49.80.
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Break-even stop
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**SBUX — Either long from ~$101.42 or waiting for $102.50+ (the monthly-up rotation). If long currently, $99 to $99.50 looks like a low-risk way to proceed and $103 seems like a reasonable ¼ trim for those already long.
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DIA — long from ~$346.75. ¼ trim near $350, down to ⅓ at $351.50. Notice the rejection from the 78.6% retrace (of the bear market range).
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B/E stop from here. Not sure yet where I want to trim.
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YM — not only did we get 35,225 for our first ⅓ trim, but the YM pushed all the way to 35,417. That’s more than 500 points from entry.
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B/E stop. Look any push over y’day high as the next trim. Down to ½ position if we see 35,500+
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Go-To Watchlist
Feel free to build your own trades off these relative strength leaders
Relative strength leaders →
(Lack of updates here but these names remain my top focus list!)
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Growth stocks ARKK — DKNG, DOCN, UPST, SHOP
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LLY, CAH
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AI stocks — NVDA, AMD, AVGO, ADBE, SMCI
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Mega cap tech — MSFT, AAPL, META, CRM
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Select retail — CMG, ELF, LULU, COST
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Homebuilders ITB — TOL, KBH, DHI
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BRK.B
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ABEV, DXCM
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Cruise stocks — RCL, CCL, NCLH
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DAL, DT, AMAT
Relative weakness leaders →
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DIS → new 52-week lows
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CF, MOS
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PFE (all vaccine gains now gone)
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EL, FL, DG
Economic Calend
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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