S&P Looks to Build Off Yesterday's Recovery
Looking at the retail sector more closely.
The Fed's Dilemma
I think the next few months are going to be critical to the stock and bond markets as the Fed accelerates its interest rate schedule. Currently, the ES continues to be supported by the Fed, and until there is not a significant reduction in the money it spends every month, this big “water in the bathtub trade” could drag on.
This is a decent breakdown on what the Fed has done and what it wants to do now.
Our View
The ES rallied 72 points in three hours and then dropped 23 points just after the imbalance. No one survives this kinda stuff. One minute you're golden and the next you are back to taking heat.
I mean that for both sides. Shorts had their faces ripped off as the ES failed to break down below Wednesday’s Fed Day low. Then longs looking for a late-day squeeze suddenly took a 20+ point gut punch in the final minutes of the day.
That closing drop was an example of the buyers front running the imbalance and not enough buying to hold up the ES and NQ.
Our Lean
After the weak close, my guess is we rally on Globex. I think we will go up today, but I also think it's going to sell off first.
Our lean is to sell the early rallies and buy the pullbacks and come back for the close and play the MIM. It would be great if we could get the mid-morning low around 10:30 to 11:00 and push higher from there.
If I’m right, we will see another good rip higher — it's just a matter of when. 4520 and 4540 are my early upside targets if the bulls gain control.
Daily Recap — S&P 500 'Short Squeeze'
The ES traded down to 4454.25 on Globex and opened Thursday's regular session at 4466. After a few down ticks, it popped 20 points up to 4486, fell 18 points, then popped 19 points to 4486.75. From there, the sellers stepped in and took control, with the ES closing lower in five of the next six 30-minute windows. The one “up” candle in that sequence was a ¼ point gain.
Then the bulls took over.
After tagging Wednesday’s low to the tick, the ES rallied more than 70 points from the 12:50 low to 3:40 high. Every 10 point dip was bought along the way as they squeezed the shorts hard. The 4515 area was resistance and the ES went into the 3:50 cash imbalance at 4508 as it showed $1.1 billion to buy. From there it faded, going out at 4497.50 on the 4:00 cash close and settled at 4495 at the 5:00 futures close.
In the end, the ES was weak in the morning and strong in the afternoon. Like I said earlier: Water in the bathtub. In terms of the ES’s overall tone, it was mixed. In terms of the day's overall trade, volume was OK at 1.41 million contracts traded.
Total Range: 72.75 points
H: 4517.25
L: 4444.50
Technical Edge —
NYSE Breadth: 60% Downside Volume
NASDAQ Breadth: 58% Downside Volume
Yesterday was pretty impressive stuff and got us to several trim spots on the Go-To Watchlist. The market was rolling over and breadth was hovering near 80% downside volume. This has “break the lows” written all over it. But then the lows held and the market enjoyed a nice rip higher.
We still ended at about 60% downside breadth, but it was a hell of an improvement in the afternoon vs. the morning.
Game Plan
Keep this in mind. A lot of names have a two-day low that must be respected. If these lows break and can’t be reclaimed, then we could be looking at a continuation to the downside. I don’t mean today necessarily, but next week all of these levels will be key for the bulls to hold, IMO.
Here are some:
ES: 4444.50 (back-to-back matching lows)
SPY: $443.47
NQ: 14,137
QQQ: $348.69
SMH: $248.11 (economic barometer)
ARKK: $60.61
TSLA: $1,021.54 (prior market leader on the rally)
AAPL: $169.85 (prior market leader on the rally)
S&P 500 — ES
So far we have an “ABC” dip with a two-day low at 4444.50 as the S&P holds the 21-day. However, yesterday’s rebound stalled right at the 10-day and the 50% retracement of this “C leg.”
If the S&P can push above 4517, it puts the 61.8% retracement in play at 4534. Above that and we can look at 4555 to 4560, then 4580-ish. One step at a time though!
If the ES can’t sustain above 4517, then watch the Globex low near 4490. Below that and the 4477 to 4480 area is in play, followed by the 21-day.
**Right now, traders are looking to see if this is a completed “ABC” correction and we’re set to move higher or if it’s an “ABCDE” correction and we have to watch the vulnerability of the lows.**
TLT
Bonds have been a big driver for stocks, particularly tech. Here’s one idea as it pertains to the TLT, which is under pressure again this a.m.
Could we see an eventual move down to the 200-month moving average?
Retail Stocks — Setups & Charts
TGT — Monthly-up over $229.25. A daily close above puts $236 in play, then potentially $250 before higher targets come into play.
WMT — I want to buy the dip into the $152-ish area, preferably if it lines up with the 10-ema
COST — We have spanked this relative strength leader a few times lately. Let’s wait for a reset.
HD — Short-term trend has not been friendly, but seasonality is shifting into HD’s favor (the upcoming quarter is its strongest quarter while the retail sector has been coming to life. Just something to watch. Aggressive bulls can consider long around $300, with an initially wide stop down now $288 to $293, depending on how conservative bulls want to be.
TGT
WMT
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Please look at these closely, as there are several updates (the most recent of which are noted in bold).
Watching XLB to see how it consolidates these gains. Break lower or remain a leader?
PANW — Next trim spot is $645 to $650 — careful. $595 stop.
MCK — Boom! Second trim spot hit. Look for $323 to $325 on final runners.
MKC — $103 to $104 Trim Spot hit → Stop now at break-even or ~$99. Look for another small trim at $105+ | If we see $107 I want to be down to just ⅓ position
DLTR — Triggered — Lowering trim spot to $159.50 to $160. If we see $162, I want to be down to ½ — and trimming the rest at $165.
Look at how strong these stocks have been!! In a market rife with volatility, head-fakes and downtrends, these names are trending higher. That’s why I always say “feel free to build your own trades off these relative strength leaders!” They are dominant.
I have been wanting to do a video on these names, but I’ve been sick all week. If I can’t do a video in the near-term, perhaps I will do a separate newsletter post!
COST
ABBV
TU
VRTX
BMY
Energy — FLNG, XLE, APA, CNQ, CVX, ENB, PXD — etc.
ADM, MOS
PANW
AR
AMGN
ABC
UNH
Guest Post — AM Turn
It was good to see the bulls did not disappoint yesterday. I went with S4H yesterday, which implies a very strong close. And we that we got! The market is still whipping around 75 to 100 handle runs as the VIX is peaking at 20 and more.
There is plenty of money to be made and lost so be sure and use your stops. Call it a delayed Wedge Zoom as some tech and retail (WMT and HD) started to move up just after the 10:30 marker.
Yesterday tested the previous day's lows and found a bid. That's a classic selling climax, automatic rally and secondary test. It does not get better than that. And add in the end of the cycle on a S4H day. It's almost a sure thing. If anything is sure...
Looking Forward Friday, April 8, 2022
Overnight Globex has pulled back to the big enven handle. As I write just above the 4500 and change. This day starts a new cycle. And a Friday. The market has been drifting down for the past few days.
Jessie Livermore might suggest potential for a bullish rally providing the news is in agreement with the bulls adenda.