Rally Is Stalling, but Upside Risk Remains

The PCE report could move markets

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Hey, it’s me Danny. I’m back!

Sometimes you have to decompress from trading every day. I was going to take the whole week off, but I felt bad that I broke a 31-year streak of writing the Opening Print and I wanted to get short. I sold 5087.50s and I have offers in above there. In other news, Bitcoin surged to $64,000 yesterday, Tesla gained +1%, while the rest of big tech — Microsoft, Apple, Nvidia, Alphabet, Meta and Amazon — all fell. The VIX climbed +1.5% and TLT gained 0.6%. The point? Everything is moving ahead of today’s economic releases.

The PitBull thinks this could be the beginning of a pullback. He didn’t say how much, but he did say many of the stocks he watches have gone too far and are overdue for pullbacks. You know how I always say no one knows where the S&P is going for sure? Well, I am not going to name them, but many of the well-known market timers have been saying “sell, sell, sell” for months. I think when it comes down to it, we will know that something has changed and I don’t know if it’s going to be an economic problem or something like the US is fighting wars on multiple fronts.

There are a host of things that potentially could cause a larger decline, but right now the US stock market continues to make good of the bad news. If today’s PCE report — the Fed’s preferred inflation gauge — comes in hot, it could put the Fed’s rate cuts on hold even longer.

Our Lean

Yesterday all three major index markets closed lower, with shares of Nvidia declining 1.3%. Alphabet, Google’s parent company, fell 1.8% and Apple edged down 0.7%. Wednesday has been the day the ES has been making its low. Everything closed weak, but one of the problems is everyone is trying to short. And now, we are going into the Thursday/FRYday expiration low. In addition to the economic releases today, there are also 5 Fed governors speaking — so I think we could see a busy day.

Our Lean: If you are short, it’s normal to be concerned. A big gap down could bring buyers in and if the PCE number is favorable, then it could be off to the races. There are tons of stops building up above 5090 and below 5060. Ideally, I am still in a sell-the-rallies mode, but also expecting some whiplash.

According to HandelStats, the 10-year note is breaking down. If it takes out the 109.09 low, there is a good chance it could test 108.16 and could test the 107 area. If the bonds (/ZB) break 117.11, they could break down to the 112.22 area. If the ES is below 5068 or lower at 8:00 am there is a 68% probability of the ES going lower and could see the ES down to the 5021-27 level. And if the ES is lower than the 8:00 reading at 9:30, it’s even more negative.

Lastly, according to the Stock Trader’s Almanac, the last of February ends miserable but the first trading day of March has been up 16 of the last 24 occasions. March sees mid-month strength and late-month weakness.

MiM and Daily Recap

After trading up on Tuesday’s close, the ES sold off down to 5063.25 on Globex and opened Wednesday’s session at 5072.25. After the open, the ES traded down to 5068.75 at 9:34, traded back up to 5077.25, sold off down to a new low at 5068.50 and then rallied up to 5087.75 at 11:09. From there, it did a small back-and-fill, made a lower high at 5078.25 and then sold off down to a higher low at 5073.50 at 12:42. After the pullback, the ES back-and-filled under the VWAP, rallied up to 5087.25 at 1:45 and then reversed back down to the 5071.00 level at 3:03 and then back up to the 5082 level at 3:04.

From there, the ES pulled back to the 5074.25 level and traded 5077.00 as the 3:50 cash imbalance showed $1.89 billion for sale and traded down to 5072.25 and traded 5080.25 on the 4:00 cash close. After 4:00, the ES sold off down to a new day low at 5066.25, just 2.5 points below where it opened and settled at 5071.50, down 9 points or 0.18% on the day.

In the end, it was another day of failed rallies and low volumes. In terms of the ES’s overall tone, it was weak but still holding the lower band of support at the 5060-5070 level. In terms of the ES’s overall trade, volume was low: 206k ES traded on Globex, and 927k traded on the day session for a total of 1.133 million contracts traded.