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Our View
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Welcome to the March 2023 quarter end. Today we are going to provide you with the Morgan Stanley end-of-the-quarter rebalance. These are all direct quotes.
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QDS estimates that US defined benefit pensions should be buyers of ~$14bn of global equities into March month/quarter-end
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In contrast, pension rebalancing is likely to translate to $19bn of outflows from bonds
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Plus, chunky SPX options positioning for the March 31st expiry will impact the dealer gamma profile leading up to expiry, and it could lead to several $bn of delta to buy or sell upon expiry depending on where SPX is on March 31st
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On the March 31st expiry, if SPX is below ~4065, there is likely to be several $bn of delta to sell, but if SPX is above ~4065, there is likely to be several $bn of delta to buy.
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Our Lean
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Regardless of the SEC changing T+3 to T+2, there is a good possibility we see some buying over the next few days based on the above data. That doesn’t mean traders can’t sell the rip, but the mutual funds and/or ETFs will mark up the winners and sells the losers.
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Usually the stock buys come in and then on Friday we have a MrTopStep trading rules that says by 11:00 ET the funds have used up most of their buying power and they walk away. I know this may seem too easy, but I assure you it’s not.
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The real deal is the ES has been chopping around in the same range over the last 8 months. Will that change soon? I can’t say it won’t change, but my guess is we will remain in a choppy trading range.
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Our Lean: Buy the pullbacks, as I think the bias is up a little. Although that could eventually set up to be a sell. the 4035 to 4045 area is the nut to crack on the upside and it’s been a tough one. Levels below.
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MiM and Daily Recap
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The ES hit a low of 3979 on Globex and opened Tuesday’s regular session at 4002.25. The ES traded down to 3994 and then traded up to 4009.50 at 10:15, then sold off down to a new low at 3989.75 as Fed Governor Barr stated speaking. The ES rallied up to a lower high at 4006.50, sold off a few points, made another lower high at 4006 just after noon and then a sell program hit, pushing the ES down to new lows at 3980.75 at 1:55.
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After the low, the ES rallied up to another lower high at 3997 at 3:10 and sold off down to 3988 at 3:30 before rallying up to 3996 at 3:37 as the early imbalance showed $211 million to buy. The ES traded 3996.25 as the 3:50 cash imbalance showed $459 million to buy, traded up to 4002 and traded 4005.75 on the 4:00 cash close. After 4:00, the ES traded up to 4007.50 and settled at 4006.50 on the 5:00 futures close, down 5.75 points or 0.14% on the day.
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In the end it was a draw; neither the bulls or the bears won. In terms of the ES’s overall tone, it was pretty much under selling pressure until late in the day. In terms of the ES’s overall trade, volume was low at 1.18 million contracts traded.
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Technical Edge —
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The VIX has now faded almost 40% from the recent highs, as investors seem less panicked about the banking situation.
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Yesterday’s open saw a lot of selling pressure in tech, where we had several setups outlined (specifically, the QQQ, AAPL, AMD, NVDA & GOOGL). All stocks will be updated below in the individual stock section. It’s likely that many traders only grabbed 1 or 2 of these setups, and given this morning’s action, that’s just fine!
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Let’s look at the S&P, which has been trapped in an ever-tightening range over the last month.
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S&P 500 — ES
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Back in that 4035 to 4045 resistance zone. A make-or-break area for both bulls and bears.
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Key Pivot: ~4040, 4000
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Upside Levels: 4045-35, 4055, 4070-75, 4090
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Downside levels: 4020-25, 4000-05, 3973-80, 3957
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SPY
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Set to open right near this week’s high, the SPY could push up into the $400 region. Will be key to see how it handles this area. I would expect some initial sells.
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Key Pivot: $396.50
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Upside Levels (SPY): $399, $399.75 to $400.50, $402.50, $404-05.
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Downside Levels (SPY): $396-96.50, $393.75, $392
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SPX
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Downtrend resistance and the 50-day moving average are two key measures bulls would like to see regained.
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Key Pivot: ~4000
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Upside Levels (SPY): 4012-4015, 4040
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Downside Levels (SPY): 3972-75, 3950-55, 3933
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NQ
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Nice hold of the 10-day & 12,700 level. Now can it go 13,000+?
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Upside Levels: 12,950, 13,000, 13,080
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Downside Levels: 12,730-740, 12,700, 12,634
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LULU
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If trading LULU on earnings, just be mindful of the ~$368.50 gap-fill level and the 78.6% retracement. Could be an initial fade zone.
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Open Positions
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Bold are the trades with recent updates.
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Italics show means the trade is closed.
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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.)
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** = previous trade setup we are stalking.
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FSLR down to a runners.
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AAPL — Long from $157. Ideally want a bigger rally off the open, but look to trim on the opening range above yesterday’s high. Ideal trim zone is $160 to $161.
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Stop can move to B/e after initial trim.
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GOOGL — Trim opening push as it tries to go daily-up over ~$102.50. Down to ½ if we see $103.25 to $104. Stop at $99.50, but B/E after first trim.
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NVDA — Long from ~$259. Trim opening push or in pre-market even. Ideally $267+. If we see $270+ down to ½ position. Stop is at B/E.
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QQQ — Long from $306 (roughly the 10-day) — trim on opening push or in pre-market. Trim more between $310 and $311.
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Ultimately want to be down to ½ or less if we see ~$311+. B/E stop after first trim.
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AMD — I tried a cash flow trade in AMD and was quickly stopped out as per rules.
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If swinging this, trim on the opening push, then more at $97+. Stop clearly defined at $92.50, then B/E after first time.
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TRIP — short from 18.90 — out roughly ½ on Friday’s dip.
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B/E Stop. Looking for a break of 18.25 before next trim.
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Go-To Watchlist
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Feel free to build your own trades off these relative strength leaders
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Relative strength leaders →
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NVDA, AMD
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CRM, GOOGL, AVGO
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MSFT
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PANW, FTNT
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FSLR
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GE
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DKS
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AQUA
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ULTA
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AEHR → volatile!
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MELI
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Economic Calendar
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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.
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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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