It Will Be Key to See if the Market Holds Active Support
The market had an 84% downside day yesterday.
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Our View
On the bulls’ side, the ES has been back-and-filling in the 3920 to the 3960 area for weeks. Every little pullback has been bought and not showing many signs of wanting to go down much. When I look at the monthly chart for the ES, I see a lot of consolidation and the dips being bought.
On the bear's side, the Dow made its low on October 3 at 28,635 and all but retested it on October 13 when it hit 28,671. The high was made on Friday, November 25 at 34,393. Yesterday it traded down to 33,805 — 588 points off our highs.
Powell’s commentary on Wednesday is likely to lean hawkish — or at least that has been the trend — but we’ll see if the market buys it, as investors are pricing in a slowdown in rate hikes.
Our Lean — Danny’s Take
Am I surprised by yesterday's sell-off? Not at all! That’s why yesterday’s Lean said, “we cannot rule out buying the open for a scalp, but we think today is a sell-the-rallies day.”
The ES fell 1 point after the 9:30 open, then rallied almost 20 handles in the first 5 minutes of the day.
Nor was I surprised by yesterday's MIM flip from a sale to a buy (note: Please take a minute to study the MIM chart below. We have now charted the MIM data and it helps illustrate the “follow the money.”)
At 3:36 I said, “I smell a rat” and the futures rallied 10 handles after the MIM and 4:00 cash close. I said it’s in the form that it felt like everyone was short and then the guys with the better seats show up with a big buy imbalance. Sometimes you can just feel it — or maybe that’s just me from working the floor orders for 3+ decades.
So where from here? I think there are two scenarios.
The ES is going back down to the 3810 level or
We just keep playing “water in the bathtub” where bulls push the water one way then bears push it back the other way.
Our Lean: