November Rate Hike In The Cards
The Fed’s not making any friends.
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Our View
As expected, the Fed left rates unchanged. However, Powell’s comments rained on the Bulls’ party. While rates remain unchanged, Powell & Co. left the possibility of one more rate hike by year’s end and reiterated a “higher for longer” stance.
For instance, the committee sees rates staying near ~5.1% by year-end 2024, which is in contrast to what the market was pricing in. While there has been a shift toward the “higher for longer” expectations by markets over the last month, the most likely probability was pricing in an expectation of rates in the 4.5% to 4.75% range.
I should have known that whatever Powell was going to say would not be good. Historically on Fed days, volatility picks up during and after the press release and we saw it again yesterday.
Plain and simple I made money early in the day and got chopped up late in the day. I had the “sell early rallies” part, but I didn’t think the ES would fall as hard as it did.
Our Lean
The Fed signaling that it will keep interest rates higher for longer was a wake-up call that caused all three major averages to close on their lows yesterday and are down sharply again this morning. With the early selling pressure, the ES is right near the August low.
The Fed also indicated that there would be few cuts next year. This was especially bad news for the tech sector, with tech bellwethers Nvidia and Tesla down 2% and Alphabet and Meta falling 1.5% premarket. Note that bonds are at new 2023 lows and 10-year yields are ripping.
We thought the markets were settling up for a selloff last week, but it took the Fed’s comments yesterday to get the ball rolling. Our Lean is for lower prices and to sell any 30 to 40 point rally.
MiM and Daily Recap
ES Recap 15-min
The ES traded up to 4508 on Globex and opened Wednesday’s regular session at 4503.25. After the open, the ES traded back up to 4508 at 9:32, pulled back to the 4497.25 area where it found the VWAP, rallied up to a lower high at 4507.50, and then traded down to 4496.75. From there, the ES fell into a back-and-fill pattern from 4498 to 4402.50 at 11:16 and then dropped down to a new low at 4495, rallied back up to the 4503.00 level at 1:12 and then dropped all the way down to 4478 at 2:01 as the Fed headlines hit the tape.
After the low, the ES rallied back up to 4489.25 and chopped around in a 4 to 8-point range, rallied up to 4492.25 at 2:25, and pulled back to the 4484.50 level at 2:29. The ES rallied up to 4500 at 2:33 as the Powell headlines hit the tape and sold off down to 4477 at 2:51, up-ticked to 4485 and then sold off all the way down to 4451 at 3:47. The ES traded 4455 as the 3:50 cash imbalance showed $1.73 billion to sell, traded up to 4457.75 at 3:54 and traded 4448 on the 4:00 cash close. After 4:00, the ES traded down to 4443.50 at 4:18 and settled at 4444.25 on the 5:00 futures close, down 47.75 points or -1.06% on the day. The NQ closed down 248.50 points at 15,131.75 or -1.62%.
In the end, it was a weak day for the index markets. In terms of the ES’s overall tone, every rally was sold. In terms of the ES’s overall trade, volume was steady but not large: 156k traded on Globex and 1.254 million traded on the day session for a total of 1.410 million contracts traded.
Technical Edge
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NYSE Breadth: 40% Upside Volume
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Nasdaq Breadth: 41% Upside Volume
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Advance/Decline: 50% Advance
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VIX: ~$16.25 (one-month high)
ES
Overnight selling has the ES flirting with a retest of the August low and back into prior support. The question now is, will it hold?
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Upside Levels: 4517-20, 4526, 4548-50, 4560, 4572 and 4589
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Downside levels: 4389, 4340
CL
Key area here for oil in the short term. Otherwise, the mid-$80s could be in play.
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Short-Term Support: ~$88
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Longer-Term Upside Levels: $92.50, $94, $98
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, AMD, TLT and YM.
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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
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XOM — Long from the monthly-up area at $108.50 — Trimmed ¼ at $112.50+ and ¼ at $115+. Now we have another ¼ peeled off at ~$118. If we see ~$120, can consider a final exit or hold for a longer-term swing. Up to you.
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Break-even or better stops
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Economic Calenda
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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