Bonds Remain a Problem. Opex on Tap
It's monthly Opex day, so beware of the volatility.
Technical Edge —
NYSE Breadth: 48.5% Upside Volume
Advance/Decline: 30% Advance
VIX: ~$30.35
We have finally made it to Opex. If I’m being honest, I tend not to do much trading on Opex days, because the moves are too spastic and random.
Bonds are getting clubbed this morning and again I must ask: Has the pre-Opex action propped up stocks amid this bond massacre or are bonds being driven down because of Opex?
As a general rule of thumb, bonds tend to “be right” when it comes down to SPX vs. TLT (or /ES vs. /ZB). By month’s end (or sooner), we’ll know which is true this time around.
In early August, we said that bonds were sending a warning sign and then stocks corrected hard a few weeks later. I don’t know if that’s the case right now, or if these are just some “Opex games.”
Regardless, the beating in bonds makes me wonder if stocks are next.
S&P 500 — ES
I got some positive feedback on our “no BS ES chart,” so here it is again.
3675 is breaking as support in Globex. That puts our next level in play at 3640, followed by 3590 to 3600.
On the upside, see if a rally into prior support (3675) is sold. The globex high is just a few points above this mark, FWIW.
Above that puts 3700 back in play.
S&P 500 — SPY
If the SPY ultimately follows the TLT, new lows will eventually be on tap — but that’s a big “if.”
I really like using the 50% to 61.8% retrace zone. For the current rally, that comes into play near $358.50 to $361.75. That so happens to straddle the 200-week moving average.
The Trade: The SPY is set to open in this zone as of 8:30 a.m. ET. Perhaps we can get an opening bounce out of this zone.
Below $358.50 warrants caution. Over $361.75 could put the gap-fill in play at $364.61.
TLT & UUP
If we open notably lower in the SPY, I do think we can get a short-term bounce. However, the above chart is a problem.
TLT is on top and the UUP is down below. The former is in a horrendous downtrend and is set to gap lower by 2% this morning. The latter is set to open above last week’s high, giving it a potential weekly-up rotation.
Both of these are bearish signs for the S&P, so keep a close eye on them today (although, I will admit I don't know how much correlation they’ll have due to Opex volatility).
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.
Italics show means the trade is closed.
Open Positions
XLE — I want to be down to a half position here given the strength in the XLE, but there’s no shame in a ⅓ position given the choppiness of this market.
Let’s look for $87 to $87.50 as our next trim spot (either to go from ½ position to ⅓ or ⅓ to ¼ (depending on what you hold now).
On the downside, use a B/E stop.
Relative strength leaders →
Top:
LNG — nearing the breakout near $150
MCK — Stopped earlier but still holding the breakout near $340
CAH
LPLA
CCRN
FSLR
REGN
ALB
VRTX
CYTK
Economic Calendar
