Oversold Bounce Gives Bulls a Day of Rest
How long will it last?
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Our View
Yesterday, I could see that the dips were being bought early. I tried to sell it a few times and posted this in the chat room:
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IMPRO: Dboy :(9:50:18 AM) : short not working
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IMPRO: Dboy :(9:57:06 AM) : I should have known everyones short
I ended up making money on the day, but you really could see the early price action shift. Maybe part of it had to do with the old Jewish trading adage, “Sell Rosh Hashanah, buy Yom Kippur.”
Or maybe it had something to do with the PitBull’s trading rule that the ES tends to rally early in the day and early in the week.
Or maybe the ES was just oversold.
Or lastly, maybe it was just all of the above. Either way, when I look at the rally, it made perfect sense. That said, I still think as the week wears on, so will the S&P.
Our Lean
The bonds were down another 2 points yesterday and hit new lows. The 10-year yield hit new highs and crude oil remains near the highs. As I said before, this is a toxic mix for the stock market.
I base my view of the markets through my own eyes. Sometimes my view is spot on and other times it’s not. But I have to admit that when the PitBull sounds concerned, it’s usually a very bad sign.
Last night he told me to look at CitiBank (C). The bank did a 1-for-10 reverse stock split in 2011 when it was trading near $44 (or $4.40 pre-split). Where is it now? Just under $41. He also pointed out BofA (BAC), which is near $27.50 a share. Not only is that stock down almost 50% from the 2022 high, but it remains well off its 2006 high — a high it never took out in the prior bull market.
I remember in late-2007 when he said there is “rotten wood floating around” in the market leaders — AKA the bank and brokerage stocks. He saw the credit crisis coming and I’m not saying this is the same thing, but over the years he has always ended up more right than wrong. And remember, I have done business with and been friends with Marty for a very long time.
Before he hung up, he said we also have the government budget negotiations going on and like I said in yesterday’s OP, it is just another thing for the stock market to worry about. I’m sticking to my guns and still think we see lower prices.
Our Lean is to sell the rallies.
MiM and Daily Recap
ES 15-min recap
The ES traded down to 4338.25 at 9:13 am and opened Monday’s regular session at 4348.25. After the open, the ES made a low at 4354.50 and rallied up to 4364.25 at 9:57, sold off down to 4357.50, made a lower high at 4363 at 10:17 and then sold off down to 4348.75 at 10:28. From there, it rallied to 4356.75, sold off down to 4347.75, rallied up to 4371.75 at 11:17, pulled back to the 4365.50 level, rallied up to a new high at 4373.75.
From there, the ES pulled back to 4367, rallied up to 4377.50, dropped down to 4362.75, and rallied up to a lower high at 4375.25 and sold off down to 4362.75 at 1:48. For the next hour and ten minutes, the ES chopped between 4374 and 4364 and finally broke down below the VWAP down to 4356.50 at 3:10 as the early imbalance showed $168 million to sell, then rallied up to 4376 as the final imbalance showed $667 million to sell and then shot up to 4381.50 on the 4:00 cash close. After 4:00, the ES traded up to 4383.50 and settled at 4382.50, up 20 points or +0.48% on the day.
In the end, the selling was used up early and the shorts got squeezed. In terms of the ES’s overall tone, it acted oversold. In terms of the ES’s overall trade, volume was lower: 277k ES traded on Globex 1.213 million on the day session for a total of 1.490 million contracts traded.
Technical Edge
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NYSE Breadth: 50% Upside Volume
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Nasdaq Breadth: 59% Upside Volume
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Advance/Decline: 48% Advance
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VIX: ~$17.25
ES
An oversold bounce got us going yesterday, but we’re back under pressure in Globex. Watch the recent low at 4338.
ES Daily
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Upside Levels: 4382-84, 4390, 4398, 4407, 4417 and 4450-52
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Downside levels: 4333-38, 4320, 4308-10, 4300 and 4290
NQ
Still holding the 14,800 area for now. Let’s see if it can keep that up.
NQ Daily
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Upside Levels: 14,950, 15,000, 15,130-150
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Downside Levels: 14,750-800, 14,630-650
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.
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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 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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