The Market Simply Ignores the Macro Backdrop

There are a million problems out there, but the S&P 500 doesn’t care.

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Our View

What if we are 100% wrong about all the economic and the global macro picture? Higher rates don’t matter, high inflation going higher, mortgage rates at 7%, commercial real estate meltdown, geopolitical issues that persist, inverted yield curves…the list goes on and on.

As the stock market rallies, investors feel good enough to sell some of their bonds and jump back into stocks. I have seen it many times — everyone gets too pessimistic, the VIX drops and the futures rally. That’s kind of what is going on now.

On the one hand, I’m happy. I know I called for a lot lower prices this year and we did selloff, but now the ES is budding up against 4300 and the NQ recently traded up to ~14,695 up more than 3,800 points off its low. I’m a bull at heart and like seeing the markets go up and my friends and family make money.

Does this rally have to do with AI? Part of it does, but the US has a lot of really strong technology companies and right now that’s what investors are betting on. In fact, it’s just a handful of them that are driving almost all of the gains.

Will AI cause a crash? My answer is, did it on Y2K? I don’t see a 2000 tech bubble type selloff.

Our Lean

What if the big bet right now is a lower CPI reading that pushes the Fed not to raise rates next week? (Just so you know, the CPI print is on Tuesday, while the PPI print and Fed decision are on Wednesday). It’s likely they’ll have decided what to do given how close these events are, but who knows. Currently, the odds heavily favor “no hike.”

I thought you could sell the rallies yesterday and that was right for most of the day, but the old “buy the pullback” price action showed up and I actually said it at or near the lows in the MrTopStep chat room.

Our Lean: I still think you can sell the rallies — you just have to be patient — and wait for a good pullback to buy, which looks like 20 to 30 points in this current environment.

As for levels, I still have these on my screen as the ES mostly stayed within the prior day’s range:

MiM and Daily Recap

The ES traded down to 4273.75 on Globex and opened Tuesday’s regular session at 4275.50. The ES sold off right out of the gate, falling down to 4268.50 at 9:37 and rallied up to 4286 at 10:35. It pulled back 5 points, then rallied up to 4293.25 at 10:53. After the high, the ES sold off down to 4277.25, rallied back up to a new high by two ticks at 4293.75, and then dropped down to 4267 at 12:58, down about 25 handles. The ES rallied up to 4287.50 and then dropped down to a new low at 4274.50 at 2:36 and then rallied all the way up to 4291.50 at 3:35.

The ES traded 4291.25 as the 3:50 cash imbalance showed $1.77 billion to sell, climbed up to 4294.75 and traded 4289.75 on the 4:00 futures close. After 4:00, the ES held in the upper end of the trading range and settled at 4292.25, up 11.25 points or +0.2% on the day.

In the end, the weakness in AAPL was a drag on the ES. In terms of the ES’s overall tone, the selloffs were being bought. In terms of the ES’s overall trade, total volume was 1.5 million contracts traded.

Technical Edge

Not much has changed from yesterday. The action was mostly choppy as the S&P had a big move higher on Friday but no meaningful bearish news to bring it down. I would still love to see a retest of the 10-day moving average and prior resistance, but just because we “want” that, doesn’t mean we’ll get it!

S&P 500 — ES

SPY

Rejected right off the 61.8% retrace of the bear-market range at $429.61. Now we must wonder if — or really when — the SPY will fill the open gap down near $423.

Yesterday we watched and waited for that 78.6% retrace + 10-ema combo on the 4-hour chart as a potential support area. Maybe we get it today?

The setup:

**For the SPX, the 78.6% retrace is at ~4253.50.

SPX

NQ

PATH

Remember when we flagged ARKK a few weeks ago? It’s clear that growth stocks are trading better and PATH is too.

A dip back to the $18 to $18.25 area is worth a look, as it lines up with the Q1 high and prior resistance, as well as the rising 10-day ema.

Stops at $17, first target at $19.

Open Positions

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

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

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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!