The 10 Deadly Stock Market Sins
US Government kicks the can
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Our View
I’m not falling for the idea of no year-end rally; it’s just a question of when it will start.
Will it start in October, the month considered the bear killer? I’m not, only because of what I call the 10 Deadly Stock Market Sins:
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Inflation (food prices)
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Historically high yields and interest rates
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Crude Oil / High Gas Prices
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The US Dollar
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Russian / Ukraine War
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Recession
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Government Expenditures and Deficits
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Geopolitical Tensions
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Technology Wars
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The US Budget (although the can has been kicked down the road)
I am sure there are more sins out there, but these are the first 10 I could think of. It’s an unprecedented situation for the US and how we come out of it is unknown. Fed Chairman Powell has time and time again talked about a soft landing, but when he was asked recently during a press conference if he would now call the soft landing a baseline expectation, Powell demurred.
“No, I would not do that,” he said. “I’ve always thought that the soft landing was a plausible outcome…ultimately, this may be decided by factors that are outside our control at the end of the day, but I do think it’s possible.”
As I have said many times, I’m not a Wall Street economist, I’m just an old floor guy who has seen a lot over my 45 years of following and trading the markets and it seems like the United States is in for the long hull. I’m always a bull market guy, but I am also very pessimistic at the moment.
Our Lean
It’s hard to really explain the level of anxiety surrounding the overall price action of the S&P and Nasdaq. I sometimes talk about the level of points the ES trades in a day. Sometimes it is literally impossible to count, but it’s in the thousands.
I know we have seen big moves, but like Friday’s late action, the ES could not break the 4322-24 level, then it exploded up to 4341.25 in 4 minutes and then sold off down to 4319.50 in 2 minutes.
According to the Stock Trader’s Almanac, the first trading day of October (today) has the S&P down 9 of the last 17 occasions with a -2.4% loss in 2011. But October also ends the worst 6 months for stocks.
The ES gapped higher Sunday night after Congress passed a stopgap funding bill that will keep agencies open for 45 days, averting at the 11th hour a shutdown that a day earlier seemed inevitable. While this may offset today’s negative stats on the first trading day of October, I think it’s going to be another long month for the bear-killing month. I wanted to sell a gap-up on this news, but it doesn’t look like we’ll get it.
Our Lean: While we could sell off, we also must remember the PitBull’s rule about the ES rallying early in the day and early in the week. This also plays into ‘thin to win’ — i.e. lower volumes, especially early in the week. We can try to buy the early weakness and look to sell the 20 to 30 point rips. The ES will also have to overcome the 4350-70 level if it wants to go higher.
As for levels, Rich Miller (HandelStats) provided the following: A trade and hourly close above 4320 targets 4327.62 and settlement 4329.25 above there targets 4334.50. An hourly close above 4334.50 targets 4349, then 4352, with the overnight high at 4355.50 then 1 sd 4363.65.
Downside: Below 4320 targets 4311, while an hourly close below there targets 4304.50 and 4300.50, then -1 sd 4294.85. Hourly close below there targets 4279.84.
MiM and Daily Recap
ES recap 15-min
The ES traded up to 4370.50 just before Friday’s regular session opened at 4369.75. After the open, the ES traded up to 4371.25, sold off down to 4358, rallied up to a lower high at 4370 and sold off down to a new low at 4352.75 at 10:26. From there, the ES rallied up to 4265.50 at 10:56 and then sold off down to 4351.50, rallied up to 4366.25 and then sold off down to 4338.25.
After the low, the ES rallied up to 4349.75 at 12:24, dumped down to 4119.50 at 1:20 and rallied up to 4328.75 at 1:33, dropped down to a new session low at 4311 at 2:33 and then popped up to 4337 at 3:03 before zig-zagging its way down to 4320.75 at 3:36. The ES ripped up to 4341.25 at 3:43 and traded all the way back down to 4319.50 as the 3:50 cash imbalance of $43 million to buy flipped to $800 million to sell. The ES traded 4322.50 on the 4:00 cash close and after 4:00, the ES rallied up to 4332.75 before settling at 4329.25 on the 5:00 futures close, down 12 points or 0.28% on the day.
In the end, it was simple. The rally on Globex and the gap higher used up all the ES’s buying power. The opening was 4369.75 and the high was 4371.25 and the ES got pummeled down to 4311.75, a 60.25 point drop. In terms of the ES’s overall tone, with the exception of the gap up open and late-day rebound, it was weak all day. In terms of the ES’s overall trade, 333k traded on Globex 1.672 million traded on the day session for a total of 2.005 million contracts traded.
Technical Edge
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NYSE Breadth: 47% Upside Volume
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Nasdaq Breadth: 60% Upside Volume
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Advance/Decline: 46% Advance
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VIX: ~$18.25
ES
Remember Rich Miller’s levels today as laid out in the Lean. Below are a few more.
ES Daily
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Upside Levels: 4350-70 is big.
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Downside levels: 4300, 4275-77
CL — Oil
Oil hit my $94-95 target. Now bulls want to see this hold $90 to keep the recent high in play. Stock bulls want to see oil prices cool off.
CL Daily
Short-term support: $90-$91
Upside levels: $94-95, $97.50 to $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.
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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.
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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