Bonds Held Clues to Yesterday's Stock Market Selloff
Bonds Held Clues to Yesterday's Stock Market Selloff
Trading TSLA, UPS and the S&P.
Technical Edge
NYSE Breadth: 68.5% Downside Volume
NASDAQ Breadth: 73.3% Downside Volume
Brutal action on Thursday. I am only surprised that they were able to rally the markets back to the pre-CPI highs, but with the way that bonds were trading I’m not surprised that equities rolled back over (more on this in a minute).
I mentioned it earlier this week and will reiterate it again: I think traders need to keep the bonds up on their screens during the day. They are too big of a driving force on stocks right now.
I keep five of them on hand: ZB, ZN, ZT, TLT and TNX.
Those are the 30-year, 10-year and 2-year futures, the TLT ETF and the 10-year yield (TNX). This is also a helpful site for bond yields vs. prior timeframes (WoW, YoY, etc.)
Game Plan
Let’s just go right to the S&P.
S&P 500 — ES Futures
Feel free to extrapolate this layout to the SPY.
I feel like a broken record right now. How much have we been talking about 4580-4586 on the upside and 4510 on the downside?
Take a few minutes and study this chart, because I think it’s important. It highlights the importance of knowing your levels before going into battle.
Notice how the S&P futures dropped to the 4510 area around 9:00, only to bounce all the way back up to resistance and roll over again.
The ES tagged this week’s low in the Globex session and is now bouncing ahead of the open. From here, let’s see how it handles — surprise! — the 4510 to 4512 area.
If we push above it, the 50% retracement of yesterday’s range is around 4530, and the 61.8% retracement from yesterday’s high to the overnight low is 4534.50. So somewhere in there is where I’d be watching if we get a decent rally off the open.
Below Thursday’s 4476 low and a retest of the Globex low near 4455 is in play.
Bonds
I’m skipping the Nasdaq today to highlight bonds and I’m keeping the commentary light to let the charts do the talking.
Take another minute and study the above layout. Notice how equities — specifically the Nasdaq on the chart above, but the ES did too — roared back to life in the opening hour, while bonds really did not get much of a bid.
Notice the dark arrow at the 10:30 mark. Bonds were rolling over to new lows and the Nasdaq was pushing to new highs!
Keep these up on your screen. It may not be a direct correction, but it’s at least worth knowing how the bonds are trading.
Individual Stocks & Go-To Watchlist — TSLA, UPS, TD
I am not looking to rush much today. I want to see how the indices will trade. After yesterday’s action, the ES and NQ, (or SPY and QQQ) will be my main go-to vehicles today.
TSLA
Tesla is concerning me a bit here, because it keeps getting rejected by its short-term moving averages and the $950 area. That said, it’s not exactly breaking down.
If the markets can’t find their footing today, keep an eye on yesterday’s low. A break and failure to reclaim could open the door to more selling pressure here.
Maybe that puts last week’s low in play.
On the upside, TSLA needs to hold $900 and reclaim the 10-day.
UPS
I outlined UPS yesterday, but want to do so again today. We have exactly what we want: A pullback to the 10-day and the breakout area near $220 after strong earnings.
This is one of those high-probability setups. If we fail to bounce, it’s just one of the good setups that fails and we move on. But I love setups like this.
TD
This has been a banger of a trade since we snagged it on the weekly-up rotation lost week in the low-$80s. Up 7 of the last 9 days — and down 0.19% and 0.12% on the down days — this has been an excellent performer.
If we get a dip down to the $83-ish area, we could have a buy-the-dip scenario on hand. That’s the 10-day and a retest of the breakout area.
Go-To Watch List
Feel free to build your own trades off these relative strength leaders
So much of this list continues to trade really well. Quite pleased with the developments here and please feel free to take 5 minutes and flip through the charts of these names. They are our current leaders!!
UPS
BAC, WFC and other banks are trading well. These 2 are trying for monthly-up rotations. | ASB, MET, MS
VRTX
Energy — HAL, OXY, XOM, CVX
AAPL — Great place to book some profit on Wednesday.
ABBV — Continues to do well. 261.8% extension is $147-ish
CVS — can it find its footing after earnings dip?
DE
BRK.B
TD — continues to perform incredibly well.
V & MA — Resetting nicely. See if a bid comes in soon
BROS