Back to the Lows We Go -- Now What?
Thursday's action was demoralizing for the bulls.
Technical Edge —
NYSE Breadth: 91.5% Downside Volume (!!)
Back-to-Back weeks of 80%+ downside volume
Working on a third straight weekly of 80%+ downside vol.
NASDAQ Breadth: 88% Downside Volume (!)
VIX: ~$33
I should have been more forthcoming yesterday, but the truth is, I didn’t expect such a beating. For the Nasdaq, I wrote: “After yesterday’s action, we just want to see how this shakes out.”
What it should have said is something more like, “We are pumping the brakes today after such a big rally on Wednesday, in order to see how this shakes out.”
Further, you may have noticed that I didn’t map out the downside levels on the indices. The fact of the matter is:
I didn’t expect such a huge fall, and
If the ES didn’t hold 4250, I wasn’t interested in trading it.
I tried two dip-buys early in the session and that was clearly a mistake. It took most of the session for me to erase those losses, but at the end of the day, I still lost money and it was a lot of work.
Game Plan — S&P, Nasdaq, Bonds, Individual Stocks
We have the payrolls this morning, an elevated VIX and the S&P sitting at its YTD low. Would our best outcome be another 80% or 90% downside day to force some kind of capitulation? It would be painful, but perhaps it would be best.
With the VIX above $30, I have a hard time putting money to work in individual stocks. That said, MCK is still trading well (and now to a B/E stop), Walmart is holding in and so is DLTR.
If you are inclined to trade these individual holdings, remember to use smaller position sizing to account for the wider swings!
Otherwise, we’ll look to keep things light today with the jobs report and lots of Fed speakers (see calendar below).
S&P 500
The ES is chopping around last week’s low and the prior 2022 lows near 4100. If this area fails as support, the 4056 low is on the table.
Below that and 4,000 or lower is in play. Back in March, we laid out a scenario where the 3,000s are in play for the ES in a video. I will look to do another video soon now that this busy week (Fed, jobs, etc.) is in the books and we can discuss that scenario once more.
On the upside, the ES needs to clear 4150. Above that could put 4200 in play — the 50% retrace of yesterday’s decline.
SPY
The charts are messy but the levels are clear. The SPY is trading ~$412 as of 8:00 am ET.
On the downside, a break of last week’s low at $411.21 that doesn’t reverse puts yesterday’s low in play at $409.44. Below that (and without a reversal) puts Monday’s low on deck at $405, followed by the gap-fill near $400.
On the upside, a move above $414 could open the door up to the $417.25 to $419 range — the 50% and 61.8% retracements of Thursday’s decline.
Bonds — ZB
We have been talking about the 200-month moving average in the bonds for a while now and it’s what has kept us bearish on the TLT and ZB contract (the latter shown above).
No time on this chart have we seen the 28.75% decline we’re seeing right now, except in 2000. That’s when the ZB contract fell 31.8%.
As we keep this info in the back of our mind, could we be nearing some sort of support around the 2018 low and the 200-month moving average? Perhaps.
An undercut/flush below 136.16 and bounce could have a potential long setup in the cards.
Individual Stock Trades
DLTR
We technically got the undercut of Monday’s low and a slight bounce, but there’s not much cushion to work with here.
Remember, you do not need to trade individual stocks with the VIX above $30. But DLTR is one to keep in mind, especially if we tag the 10-week/50-day, bounce, and reclaim $160.15. That would have my attention.
MCK
For those that snagged MCK in the low $300s and got off a trim around $320, kudos. That was some good trading.
For those that missed MCK — me included! — there’s a potential setup if we trade back down toward $300 and tag the 10-week/50-day sma and can bounce.
Again, just one name to keep on the radar in these volatile times.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely. Bold are the trades with recent updates.
WMT — First target is $155 to $156 for ⅓ to ½ trim. Next tranche at $158 to $158.50. Stop still at $150.
MCK — (I Missed MCK. for those that didn’t, $320 was the trim spot from the setup earlier this week. → Now B/E stop, with the next trim spot at $323 to $325, followed by $328 to $330.
Relative strength leaders (List is cleaned up and shorter!) →
AR — booming to new highs.
WMT
PEP
KO
MCK
BMY — inside week thus far.
JNJ
DLTR
DOW
VRTX
MAR
Economic Calendar
