Stocks Under Pressure Early on Friday. Can We Get a Low?

Monthly Opex is already next week.

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Our View

I don’t steal other people’s comments, I make up my own stuff, but yesterday the PitBull said that Nvidia is the new bellwether of the stock market — like IBM and GE used to be back in the day — and I couldn’t agree more.

The question, “can one company really control the rest?” has a complicated answer. I think that’s a yes and a no answer.

The “yes” would be if tech is firm and Nvidia is ripping higher, it can affect the bullishness of the tech sector. However, the “no” comes when the markets are struggling and tech is weak, no way can NVDA carry the rest of tech and the broader market indices.

PitBull traded IBM on the AMEX and he caught on early that when IBM was firm, he could buy the S&P futures — and he made millions doing it. I am not sure that’s how it works today, but clearly Nvidia is a big market driver and it’s a bellwether, (just not like IBM was back in the day to the S&P futures). There is just too much algorithmic activity for one stock to rule.

That said, if you don’t keep an eye on NVDA — and AAPL/MSFT for that matter — even just on a little watchlist somewhere on your screen, you’re leaving a key piece of the daily stock market puzzle out of your trading arsenal.

Our Lean

That was a very negative close and the extremely high volume should be a bearish signal, but in most cases the futures will rally after a weak close.

Will the ES follow through on the downside today? I think so, but I also can’t rule out another dead-cat bounce. I also can’t rule out the Thursday/Friday low the week before the monthly opex.

Will the option gamma play a role in today’s trade? It should, but I think most of that will be late in the day when the options players can really move the market.

Let’s face it: August has become the new September, and October is known as the bear killer. So you can buy the early weakness and sell the rally or just stay with the trend/pattern and sell the rips.

Our Lean: On the downside, I’m watching 4470 and 4450-55 as potential support. On the upside, watch 4495 to 4500, then 4520 and 4540 as potential resistance areas.

MiM and Daily Recap

The Es traded up to 4525 on Globex after a hot CPI number and sold off down to 4494 at 8:42 am, rallied back up to 4522.25 at 9:07 and opened Thursday’s regular session 4508.50. The ES dipped down to 4506.75 at 9:31 and then rallied up to the day’s high at 4544.75 at 10:03. After the high, I posted this in the MrTopStep forum:

I want to point something out. Yes, I have called for selling the rips and with the exception of being off by 4 to 6 points from the high of a rip and posting to the MTS room, I didn’t sell it and I could have easily sold 4542. After the two posts I walked away from my computer for 25 minutes and the ES was down close to 30 points. The pattern of selling the dead-cat bounce was right on. Additionally that set the tone for the day.

After a pop back up to 4526.75 going into 11:00, the ES sold off down to 4506.50 at 11:21, rallied up to a lower high at 4521.50 at 11:39, dropped down to a new low at 4494.75, up-ticked a few points, then sold off down to 4488 at 12:28. After the new low, the ES rallied back up to 4406.25 at 11:49, dropped down to 4485.75, up-ticked and back-and-filled until 1:18 when the ES got hit by another sell program that pushed it down to its low for the day at 4473.50 going into 2:00.

After the low, the ES rallied up to 4497.25, pulled back to the 4485.50 level then rallied all the way up to 4501.50 at 3:00 with 1.92 million contracts traded. It was a thrasher of a trading day. After a drop back down to the 4491 level, the ES rallied back up to 4500.50 at 3:21 and then sold back down to 4476.75 at 3:46. The ES traded 4483.25 as the 3:50 cash imbalance showed $1.5 billion to to sell and traded 4486.25 on the 4:00 cash close. After 4:00 the ES traded sideways and settled at 4486.75 on the 5:00 futures close, ending flat on the day.

In the end, the ES rallied early, sold off hard and bounced late in the day only to go nowhere overall. In terms of the ES’s overall tone, it was a slave to the NQ. In terms of the ES’s overall trade, volume was high as 323k traded on Globex and 1.846 million traded on the day session for a grand total of 2.169 million contracts traded, its highest total since June 13th.

Technical Edge

Yesterday’s CPI report should keep the Fed off the rate-hiking bandwagon. We’ll get another look at the PPI number today, but overall, various inflation gauges have been trending in the right direction.

The market seems to think so too, as the Fed Funds Futures odds have ticked lower for a September hike, which now stand at about 9.5%. The other ~90% sits on the likelihood that the Fed pauses at the next meeting and does alter rates.

For what it’s worth, that 9.5% figure is down from 11% a day ago, 13% a week ago and ~22% a month ago.

I don’t know that there’s really a reason for the Fed to lower rates at this point. For the time being, it seems reasonable that they will sit at the current range of 5.25% to 5.50% unless they feel the need to raise further or that it’s time to lower rates.

For those wondering about individual stock setups, I would only note that there are times to size up and swing big and times to size down and narrow our focus. We had a multi-month run of hit after hit. When the market environment changes — like right now — we have to shift our strategies a bit too. I’d rather miss a few winners than eat a bunch of losers and sap away our earnings from the last run.

As for the indices, we’re down 6 of the first 8 sessions of August and essentially flat in one of the “up” days (as the S&P faded 1.3% from yesterday’s high). At some point, the buyers will step in. Selling the rallies is fine, but shorting into the hole is not my cup of tea.

SPY

How do you like that $451.50 level? That zone held firm as resistance as the SPY rolled over hard from that mark in yesterday’s regular-hours session.

From here, the SPY has a pretty clear-cut job: hold the $445 area and take out the $451.50 mark. Here’s the daily to highlight the levels outside of those two marks:

SPX

S&P 500 — ES Futures

4540 is holding firm as resistance, while 4470 is now being put to the test in this morning’s pre-market session. We had 4470 mapped as part of the CPI trade on Thursday, but it’s in play now.

That level is the 50-day moving average and the 61.8% retracement. Bulls would like to see this level hold by the close today.

On the upside, the ES needs to regain 4493 and ideally, 4500+

NQ

Ideally bulls want to see the 15,100 area hold as support. Otherwise 15,000 is in play and potentially lower.

QQQ

~$367 is the two-day low and the QQQ is holding the 10-week moving average. Those who were long into Friday morning had an excellent opportunity to unload into strength.

Now trading near the two-day low ahead of the open, the QQQ could have an overshoot down to the $364 area. If so, I’d expect a bounce from this area, even if it’s only temporary.

CRM

I’m not sure that we’ll see it, but something closer to the $200 area on CRM would be an attractive entry for bulls. There are plethora of potential support areas in play here and we can use a tight-ish stop around $194 to $195.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN, CVS, AMD, TLT and YM.

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!)

Relative weakness leaders →

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!