Will Powell Save the Day or Throw Gas on the Fire?

Yesterday’s action was a blow to the bulls.

Follow @MrTopStep on Twitter and please share if you find our work valuable.

Our View

What weighed on the S&P and Nasdaq yesterday? Let me see…Was it an overextended stock market that ran back into resistance?

Issues with the BRICs? Russia’s war in Ukraine?

Bonds, Mortgage rates, 10-year yields and the US Dollar? Energy prices?

the Fed, wages, and tighter monetary policies?

Slow growth in Europe and China?

US Recession worries and falling home sales?

The list goes on and on. That all said, I think Wednesday’s Nivida earnings were a whopping sell-the-news event. Shares opened higher by about 6.5% at $502.16, ticked up to $502.66, then the stock coughed up all of its gains by the close. It was not good price action and a sell-the-news reaction to great news was a concern we highlighted yesterday.

Today, Fed Chair Powell’s speech could throw more gas on the fire.

Our Lean

If Powell doesn’t have anything good to say and the ES starts breaking below yesterday’s low at 4378.50, the next levels of support at 4348, 4320, 4300 and 4280. My concern for the bears is that if the ES gaps down on high Globex volume, the buyers could step in at the open. We have seen a lot of Friday gap lower opens be the low of the day.

I find it hard to get overly bearish after a big drop going into a FRYday options expiration. With that in mind, most people seem to think we go down today and possibly on Monday and then bounce next week. I think we should and can go lower today, but the Fry-Day opex has me on-guard.

Our Lean: Sell the rallies. If the ES catches a bid above 4393 to 4400, then I have the following levels mapped out as potential resistance on the upside: 4416, 4426, 4436-4440, 4452 and 4466. 4438 would be 60 points from yesterday’s low.

MiM and Daily Recap

The ES traded up to 4485.50 on Globex and opened Thursday’s regular session at 4463.50. After the open, the ES up-ticked to the 4467 level, dumped down to 4451, and then ripped up to 4468.75, a new high for the day, and then dropped down to 4419.50 at 11:01. The ES back-and-filled for the next 20 minutes and then traded down to 4407 at 12:01. It was a continuous sell program from the open all the way down. After the 4407 low, the ES rallied up to 4420.50 at 12:28, dropped a few points then rallied up to 4424.25 at 12:44.

The ES pulled back to 4406, back-and-filled between 4406.50 to 4425 at 2:15 and then broke down to 4401.25 at 2:55, back-and-filled the next 25 minutes then rallied up to 4409.50 at 3:21. Then it puked again all the way down to 4387.50 at 3:48. The ES traded 4391.25 as the final imbalances showed $3.4 billion to sell, traded up to 4395.25 at 3:53, sold off to 4385.50 and then rallied up to the 4495 area and traded 4487.50 on the 4:00 cash close. After 4:00, the ES sold off down to 4380.25 at 4:01, then sold off down to 4378.50 at 4:37 and settled at 4383.75 on the 5:00 futures close, down 61 points or -1.37% on the day.

In the end, the bulls got their way Wednesday and the bears got their way Thursday. In terms of the ES’s overall tone, it was weak (down 2.2% from its high), but not as weak as the NQ (down 3.6%). In terms of the ES’s overall trade, volume was high with 315k ES traded on Globex and 1.457 million on the day session for a total of 1.72 million contracts traded.

Technical Edge

The bulls’ main risk is today’s slight gap-up gains. If we open slightly higher, then flush lower to take out the low, that’s not a good look. That’s as this week’s low and last week’s low linger within spitting distance (both within 1% of yesterday’s closing price for the S&P 500).

If we go weekly down below last week’s low and close below that level today, that’s going to be a problem for technical traders. Further, it would have me on watch for a potentially larger correction (like the one we laid out on Monday).

SPY

In so many words, the S&P failed right where bears needed it to…and did so in spectacular fashion. Not only did it fade hard on NVDA’s better-than-expected results, but it also put in a nasty bearish engulfing candle, opening above the prior day’s high and closing below the prior day’s low.

SPX

S&P 500 — ES Futures

The ES had us cautious going into Thursday’s session because of its fade on Globex. Now looking just as bad as the SPY and SPX, we really need to keep an eye on that 4350 area.

NQ

QQQ

Wow. We failed right in that $372 area mapped out from yesterday, but what a nasty bearish candle we got afterward. It’s one thing to fade…it’s another to do this:

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 →

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!