The Great American Shrink Down Is Not Over
Jobs report is on tap.
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PLEASE. I want your feedback on the Daily Recap. Bret and I have gone back and forth from killing it to reducing it. I'll be honest, I'm not in love with doing it; it helps me look at ups and downs, but I do NOT want to do it if the readers do not like it. It's as simple as that. And if any of you has an idea of how it could be done better please email me at danny@mrtopstep.com.
Our View
I don't know where the S&P is going, nor does anyone else. Those who say they know are full of you know what. They could turn out to be right and I have my own thoughts too — based on how it looks, I think it's fair to say lower. But that’s just me and I won’t pretend to know that’s the case, it’s just what I think and I know I can be wrong.
I have always been honest about my abilities. I am not a stock market analyst and I am not a market timer. I am just a guy who has seen a whole lot. Almost four decades on the trading floors of Chicago will do that. Running the largest S&P desk will too. Now I’ve been trading from home for almost 10 years.
In good times when rates were low and the S&P would sell off, we knew the Fed “had our backs.” Tech companies flourished too. Now with every rate hike, it pushes the Nasdaq lower and lower. The Nasdaq is the center of the indices and when it's going down, everything goes with it.
Many smart people think we will see a recession in 2023, and with the way things are going, I have to agree. We’re already seeing a recession in tech. They say over 150,000 jobs were lost in the tech sector in 2022 and 2023 is starting out with a bang with Amazon's announcement to cut another 18,000 jobs.
The job losses are not good for office space owners, either. This group has been hurting since the pandemic and a recession is going to hurt even more. There are “40 Empire State Buildings” worth of empty office spaces in New York and La Salle Street in Chicago — where the CBOT is — can be a ghost town at times.
Many customers at my S&P desk respected me enough to ask me what I thought about the direction of the S&P; they felt I had a good feeling for the markets. The PitBull would attest to this back then and still today, he values my opinion. If you asked me what I thought I would say, “We live in troubled times and I am not sure this is over."
On the brighter side of things, it will get better this year, just not right now.
Our Lean — Danny’s Take
Today's highlight is the December Jobs report. I highly doubt it's going to change the direction of the Fed.
MrTopStep has a major trading rule that says you are supposed to fade the gaps. If the ES gaps higher, you're supposed to sell it and if it fades into the bottom of the range but stays in the range, you're supposed to buy it.
For now, we’re still stuck in the 3800 to 3900-20 range. Boring, I know. But look here, this action is frustrating the masses. Do not be in the masses! Trade small, trade defensively and only take the best setups for your style. This action is designed to chop everyone up and whittle down their trading capital while the markets go nowhere. Don’t let it happen to you!
Our Lean: If the ES holds the lower end of the trading range, the ES should go back to the 3860-70 level. Above that is 3900 and 3920.
On the downside, we start hitting ES sell stops under 3806 down to 3776. My guess is there is going to be good trades in both directions.
If we hold the ranges — 3800 on the downside, 3900 to 3920 on the upside — then we trade against those until they fail. My friend Rich, (Handelstats) says, the UVXY could be a short-term buy and perform well over the next week or two, especially if the NQ stays below 10,800.
MiM and Daily Recap
The ES traded up to 3885.50 on Globex and opened Thursday's regular session at 3852.75 after a hard fade. After the open, the ES faded again, down to 3823.50, then rallied to the high of day, at 3853.50.
From there, the chop we’ve been seeing for two weeks continued. The ES made new lows at 11:15 at 3822.50, rallied to 3840 just after 12:30, then faded to 3825. The market then ripped higher by 25 handles at 1:15, pulled back 15 points, then charged higher by 17 points to 3852.50, missing the high of day by a point before fading again.
The ES traded 3827.75 as the 3:50 cash imbalance flipped from $542 million to buy to $275 million to sell. The ES traded 3829 on the 4:00 cash close and settled 3832.75 on the 5:00 futures close, down 45 points or 1.2% on the day.
In the end it was another range-bound day. In terms of the ES's overall tone, the NQ was weak. In terms of the ES's overall trade, volume has been good, 1.63 million contracts traded.
Technical Edge —
NYSE Breadth: 44% Upside Volume
Advance/Decline: 40% Advance
VIX: ~$22.85
Folks, I know the action has been boring as of late, but it’s better to be milking modest gains out of the UUP/DXY and TLT than chalking up chop-losses left and right…right?
I think so. Our jobs as traders is to make money, not to stay busy.
Here’s the ES and SPY, and I’ll send along some individual setups after the jobs report. Happy Friday and good luck!
S&P 500 — ES
The ES is trapped in a box — or the penalty box — as the ranges continue to hold.
Keep 3803 written down. That’s last week’s low. So far, the bulls have kept the market from breaking down. Maybe it’s all the new-year flows keeping it up.
In any regard, the daily ranges have been key, so the weekly ranges will likely matter too. If we trade down to 3803, see if we can dance around it and bounce.
If we get a clean weekly-down rotation, it opens the door down to 3760.
On the upside, bulls need to clear 3849 — the Globex high — and the declining 10-day. That will put 3900 in play.
SPY
SPY closed daily-down yesterday and near the low of day.
On the upside, bulls want to clear $381.84 and the 10-day. That opens the door to last week’s high of $384.35, which so far is acting like a lid. So are the 10-week and 21-week moving averages.
On the downside, last week’s low of $376.42 is important. A gap-down open to this area could give us a cash-flow long, but if it’s a clean weekly-down rotation, $370 to $372 could be in play.
Open Positions —
Numbered are the trades that are open.
Bold are the trades with recent updates.
Italics show means the trade is closed.
UUP — We are trading into our $28.40+ target zone in the pre-market. I would look for a small trim (pre-market is okay). Down to ⅓ or ½ if we see $28.40 today. $28.50-55 is the bigger line in the sand and I want to be down to ⅓ if we see it.
Let’s go with a B/E stop.
TLT — Should be down to ½ or ⅓ position as TLT pushed into the 103.25 to 103.50 range. I would surely go with a B/E stop and look for a potential push to $105 and/or the 21-day.
Economic Calendar
I just joined the group. Is there a write up on MIM . how to read it and what it says?