After Bearish Engulfing Reversal, What Now?
The S&P had a bearish close, but let's not freak out.
Yesterday was a very tricky day and emphasized why traders need to utilize stop-losses and have ways to minimize their risk.
The S&P gapped up to new 2023 highs and pushed slightly higher in the opening minutes, only to reverse lower. While it looked like it was going to rebound after filling the gap, the sellers stepped back in and drove the S&P lower.
The Dow snapped its win streak at 13 and panic has ensued about the current rally. I would just say that while yesterday’s action was nasty, we’re still in an uptrend as the market tries to digest earnings and the recent Fed announcements.
That’s not to say we blindly buy every dip or that the markets can’t go down. But it’s just one day of action. Let’s not get too twisted up on it.
Technical Edge
NYSE Breadth: 30% Upside Volume
Advance/Decline: 25% Advance
VIX: ~$13.75
Yesterday we wanted to see if they “sell the open” and they did just that, but prior resistance — $457 in the SPY, 4609 in the ES and 4580 in the SPX — was only initial support for a bounce. It did not sustain a larger bounce to new highs, nor did it contain the avalanche of selling pressure later in the day.
Now would be a good time for investors to also be aware of bonds and yields — the former of which puked yesterday as the latter surged.
Rising yields are a negative for equities and while many are trying to figure out where yesterday’s overdue selloff came from, rising yields are certainly one part of that equation.
SPY
Today’s a “proceed with caution” type of day. The S&P had a nasty outside day yesterday, opening above the prior sessions high, but closing below the prior session’s low.
That said, the buyers stepped in right at the 10-day ema and the $451.50 area. That makes it hard for me to get too bearish all at once. At the same time, we are gapping up almost 30 handles or 0.65%, which is a pretty rich open, in my view:
The Bottom Line: If we gap up into the 61.8% retracement of yesterday’s range ($456.43) and the prior resistance area between $456 and $457 (but more specifically in the $456.50 to $457 range), it’s hard for me not to be a seller initially.
Yesterday’s $451.55 low will be a key line in the sand for buyers to defend. A break and failure to regain puts $450 or lower in play.
Upside Levels: $456 to $457, $457.50, $459+
Downside Levels: $454, $451.50.
SPX
Keep a close eye on that 4575-83 zone, with the 61.8% retrace firmly in the middle at 4577. That range will be key to managing today’s gap-up.
Above is bullish, but if it’s resistance, we could have a fade setup.
Upside Levels: 4577-83, 4590, 4600-4607
Downside Levels: 4555, 4540, 4528.50
S&P 500 — ES Futures
Upside Levels: 4595, 4605-10, 4617, 4630+
Downside levels: 4580, 4560, 4553.75
TLT
TLT faded hard into the $99 support zone. If this area holds, fine. We are not trading the X-th bounce attempt out of this area into the lower highs trend.
The setup above is simply for observation. If the $99s break, we could be looking at the $95s, as outlined above.
TNX
TNX had its best one-day performance since March 27th. Fading this morning, that’s giving the S&P some life. Keep an eye on this.
If 10-year yields go back above 4%, that may have equity bulls with their foot on the brake pedal.
Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be B/E or better stops.)
** = previous trade setup we are stalking.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM, AMZN, CVS, AMD, TLT and YM.
DOCN — Long from $38.25 — Small trim at $39.75 to $40 and a second trim above $40.75. Trimmed more between $45 and $47 and down to ⅓ at $49.50+
Should have us down to a ⅓ position. I think we may be able to get $53+ out of this.
JPM — Retested the breakout zone and long. This is a longer term swing. Many are long from $143-145. Trimmed $153s, then $157.50+ on 7/24.
Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
ARKK — Long from ~$46 — trimmed near/at $50. Still carrying ⅔ to ¾ of position. Trim at ~$52
Adding back what we trimmed if we see $45 to $46
HSY — Longer-term swing. Want to see this one hold $236-37. “Minor” ~⅕ trim was at $237.50 to $239. Earnings on tap 7/27
Broke $236-$237 after our first minor trim.
SBUX — Either long from ~$101.42 or waiting for $102.50+ (the monthly-up rotation). If long currently, $99 to $99.50 looks like a low-risk way to proceed and $103 seems like a reasonable ¼ trim for those already long.
Break-even stop. $99 to $99.50 is still appropriate for those who are long
DIA — long from ~$346.75. ¼ trim near $350, another ⅓ trim at $351.50. Down to 40% position at $354+. Down to ⅓ at $355, down to runners “on anything near or over yesterday’s $356.28 high.”
traded $356.36 at yesterday’s high. Congrats on the Dow!! THis one was mega!
YM — long from ~34,900 and ⅓ trim at 35,225 (+325). Second trim at 35,417+ (+517) and finally, small trim at 35,500 (+600). Down to ¼ to ⅓ after another 35,500+ trim, down to runners at 35,600 (+700) — Congrats!
WMT — went weekly-up from this week’s play — Trimmed above $157.55 and then $158. Down to ½ position with trim at $160+
Break-even stop, down to ¼ position or less at $162.50
CRM — I’m long CRM from $227.50. I’m using the initial $222 to $222.50 stop-loss. Bulls did get a chance to trim north of $230 if they took it. We’ll see what today brings. ¼ trim on any push over Thursday’s HOD. Trim more over $232.50.
NVDA — closed, but $465 and $470 trims hit yesterday. Kudos for those carrying!
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
(Lack of updates here but these names remain my top focus list!)
Growth stocks ARKK — DKNG, DOCN, UPST, SHOP
LLY, CAH
AI stocks — NVDA, AMD, AVGO, ADBE, SMCI
Mega cap tech — MSFT, AAPL, META, CRM
Select retail — CMG, ELF, LULU, COST
Homebuilders ITB — TOL, KBH, DHI
BRK.B
ABEV, DXCM
Cruise stocks — RCL, CCL, NCLH
DAL, DT, AMAT
Relative weakness leaders →
DIS → new 52-week lows
CF, MOS
PFE (all vaccine gains now gone)
EL, FL, DG
Economic Calendar
