The Fed Will Raise Rates Today, but What Will Powell Say?
Plus, taking profits in the Dow.
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I just wanted to do a quick ~10 minute educational post on yesterday’s QQQ and NVDA setup. Even 100 shares on these trades would have equaled $1,100. If you have a few minutes, please enjoy and thank you for being subscribers!
Our View
I think the higher the index markets go, the thinner the rally will get. I was thinking about how much these markets have changed. They are so mechanical and it brings me back to my old saying that “these are not our fathers markets or charts.”
Will the ES / NQ sell off today? I imagine so and it should be led by the Nasdaq. It’s one thing if the Fed says “no more rate hikes” and another if they say “another rate hike in September.” Currently, markets are not pricing in another hike…not just in September, but for the whole year. Instead, they are expected rates to stay at current levels for the rest of 2023 and then get cut sometime in 2024.
The PitBull said that everything is so overbought. I responded by saying it’s been that way for weeks. Will the Dow’s 12-day winning streak end today? I think the odds favor it — and it’s why we have been so quick to reduce our long position in it, even though it gave us a big quarterly rotation over the Q2 highs (more info under the Open Positions section).
However, I also do not think the upside trend is over. In a nutshell. I think you have to be careful, with all the sell stops building up, there could be some big sell programs after the Fed. Powell’s presser almost always brings up the volatility.
Our Lean
One of MrTopStep’s trading rules is to fade the initial move after the headlines hit; if the ES pops you’re supposed to sell it and if it drops, you buy it.
In all honesty though, I’m not sure that’s going to work. I know this seems like a bearish view, but I would until 12:00 or 1:00 tomorrow to let the 0 DTE theta burn off and then buy a put spread 0.5% out of the money.
If it goes my way and sells off after 2 PM, take a scale before 2:30 pm. That is key because the price can reverse hard after 2:35 (once the presser begins). The nice thing about using the SPX options? Our max loss is simply price paid (AKA the net debit).
The other idea is what I call a kamikaze — 1 minute before the Fed headlines hit, you just sell an ES or preferably an NQ. Remember, I use stops so if I’m wrong I’m out. Good luck traders and faders…
MiM and Daily Recap
The ES traded up to 4593.25 on Globex and opened Tuesday’s regular session at 4580. After the open, the ES traded back up to 4592.50 at 9:58, back-and-filled for 50 minutes and then shot up to 4597.25 at 11:57. From there, it traded 4593.50 and then a Nasdaq buy program hit and the ES started running the upside stops and made a series of new highs up to 4608.75 at 1:40. Note that the high was just two ticks below the 2023 high of 4609.25.
After the high, the ES dropped down to 4599, traded 4597.25 at 3:47 and traded 4599.25 as the 3:50 cash imbalance showed $600 million to sell and traded 4595.25 on the 4:00 cash close. After 4:00, earnings from GOOGL and MSFT moved the needle, as the ES traded down to 4590, then spiked to 4605 before settling at 4604.50 on the 5:00 futures close, up 12.50 points or 0.27% on the day.
In the end, it was exactly like I said it would be, very low volumes, more people taking time off before the schools start up, and people cutting back in front of today’s Fed meeting. In terms of the ES and NQ’s overall tone, they were firm almost all day. In terms of the ES’s overall trade, volume was low, only 152k ES traded on Globex and 987k on the day session for a total of 1.139 million contracts traded.
Technical Edge
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NYSE Breadth: 45% Upside Volume
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Advance/Decline: 49% Advance
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VIX: ~$14
Today is Fed day. The one thing I’ll say is, remember the ranges. We already know the 25 basis point increase will come at 2:00 pm. The real wildcard is Powell at 2:30. That’s when they love to run the edges of the range, knock out the stops, then reverse the tape.
SPY
We got the daily-up, but SPY rammed right into resistance and stopped in its tracks.
SPY 30 min
f we zoom out just a bit, we get the 4-hour chart.
That’s got me looking at the $453.50 to $454 area. If we see that zone, it means they ran the SPY down yesterday’s low. It’s also the 50% to 61.8% retracement range of the current rally, as well the 10-ema.
SPY 4-hour
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Upside Levels: $456 to $456.50, $459
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Downside Levels: $453.50 to $454, $451.50 to $452 + 10-day ema
S&P 500 — ES Futures
Yesterday’s layout worked well, with 4592-95 acting as resistance early in the session, then flipping to support after it cleared this area. Then it worked its way over 4600 and came within a tick of that 4609 level.
ES futures 15-min
As for today, it’s likely to be more volatile. I am keeping an eye on yesterday’s low at ~4579.
A break of that level opens the door down to 4565, which was recent support and the 10-day moving average. An overshoot puts the ~4550s in play.
On the upside, ~4609 is clearly resistance for the time being.
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Upside Levels: 4592-95, 4609, 4623, 4640
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Downside levels: 4579, 4565 and the 10-day ema, 4530-25
SPX
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Upside Levels: 4578-80, 4595-4600
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Downside Levels: 4550-52, 4544, 4527.50, 4505-10
NQ
Yesterday’s daily-up gave bulls more than 100 points in profit to work with going into the GOOGL and MSFT prints.
The Fed will drive today’s narrative. If they puke the NQ back down, let’s see how it does in the 15,430 to 15,450 area. There we have the breakout level, 21-day moving average and the 61.8% retracement.
On the upside, 15,735-740 is current resistance. Above it puts 15,575 then 15,840+ in play.
NQ Daily
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Upside Levels: 15,735-740, 15,775, 15,840+
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Downside Levels: 15,600, 15,530-550, 15,430-450
CRM
CRM Daily
This one might be coming back down based on the pre-market action. However, if we get a tighter open and CRM goes daily-up over $227.50, it’s worth a shot on the long side, potentially with some shorter dated call options.
Initial stop would be tight, $225. ~$231 is the ideal first target.
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.
Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN, CVS, AMD, TLT and YM.
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DOCN — Long from $38.25 — Small trim at $39.75 to $40 and a second trim above $40.75. Trimmed more between $45 and $47 and down to ⅓ at $49.50+
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Should have us down to a ⅓ position. I think we may be able to get $53+ out of this.
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JPM — Retested the breakout zone and long. This is a longer term swing. Many are long from $143-145. 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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ARKK — Long from ~$46 — trimmed near/at $50. Still carrying ⅔ to ¾ of position. Trim at ~$52
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Adding back what we trimmed if we see $45 to $46
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HSY — Longer-term swing. Want to see this one hold $236-37. “Minor” ~⅕ trim was at $237.50 to $239. Earnings on tap 7/27
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DAL — long from $47.20 (daily-up) and trimmed at $48. Trimmed down to ½ at ~$48.50. $49 is technically the next trim spot, but aggressive bulls can just go for the post-earnings highs near $49.80.
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Break-even stop
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SBUX — Either long from ~$101.42 or waiting for $102.50+ (the monthly-up rotation). If long currently, $99 to $99.50 looks like a low-risk way to proceed and $103 seems like a reasonable ¼ trim for those already long.
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$103+ trimmed for those long from $101.42-ish. Looking for $105 to $105.50+ for next trim
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DIA — long from ~$346.75. ¼ trim near $350, another ⅓ trim at $351.50. Down to 40% position at $354+.
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I am almost thinking trim down to ⅓ position or less on anything over $355. The run in the Dow is impressive, but unsustainable.
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YM — long from ~34,900 and ⅓ trim at 35,225 (+325). Second trim at 35,417+ (+517) and finally, small trim at 35,500 (+600). Down to ¼ to ⅓ after another 35,500+ trim, down to runners at 35,600 (+700) — Congrats!
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WMT — went weekly-up from this week’s play — Trimmed above $157.55 and then $158. Down to ½ position with trim at $160+
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Break-even stop, down to ¼ position or less at $162.50
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NVDA — Long from daily-up over $451, first trim at $460. Second trim spot is $464-465, then $470. Break-even stop.
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!)
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Growth stocks ARKK — DKNG, DOCN, UPST, SHOP
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LLY, CAH
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AI stocks — NVDA, AMD, AVGO, ADBE, SMCI
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Mega cap tech — MSFT, AAPL, META, CRM
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Select retail — CMG, ELF, LULU, COST
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Homebuilders ITB — TOL, KBH, DHI
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BRK.B
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ABEV, DXCM
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Cruise stocks — RCL, CCL, NCLH
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DAL, DT, AMAT
Relative weakness leaders →
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DIS → new 52-week lows
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CF, MOS
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PFE (all vaccine gains now gone)
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EL, FL, DG
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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