Messy Start to the Week as Bank Failures Weigh
Trade slow & Smart or not at all!
Technical Edge —
NYSE Breadth: 11.5% Upside Volume (!)
Advance/Decline: 13% Advance (!)
VIX: ~$29
This is not good. 3 banks have gone under in the last week, the S&P is breaking downside levels and the VIX is rocketing. From Thursday’s low to Friday’s high, the VIX rallied more than 50% (and now it’s trading above Friday’s high).
While equities haven’t felt that big of a punch yet — with the S&P down about 3.5% in two days — it’s concerning to see the flee from risk assets into safe-havens. Treasuries have exploded higher, as has gold. Traders are starting to price in rate cuts and pauses in rate hikes vs. just days ago pricing in higher rates for longer.
Some may say that rate talk is a positive — and it kind of is — but the reason for the pause is not good by any stretch of the imagination.
The worst part? The unknown. Investors aren’t sure how the bank situation is going to shake out with Signature and SVB. They also don’t know if there are more banks set to fail in the coming days or weeks.
Following in the footsteps of our past plans, we are going to slow down while the market is speeding up. That includes trading with less frequency and trading with smaller positions and focusing less on individual stocks and more on the indices.
Note: Remember the CPI report is tomorrow.
I cannot emphasize this enough: Not all days are meant to be trading days. Do not trade simply to trade. It’s one thing to do so when it’s a slow day in August during a bull market with the VIX at $12. It’s another thing to do it now.
Trade small & trade smart or don’t trade at all!
S&P 500 — ES
The ES couldn’t hold the 3910 to 3920 area, while our 3878.50 level held firm on Friday, with the low coming into play at 3881. Now, I’m not so sure that we can bank on that level twice.
The “failing firms” uncertainty creates a big headache in technical analysis, because the volatility ranges are greatly exacerbated.
If last week’s low can’t hold at 3881, it puts the 3820 to 3840 zone in play.
If we can regain and hold 3881, then 3900, 3920 and 3950 are my upside levels to watch (3900 being the “weakest resistance level” and 3950 being the strongest).
SPY
Like the ES, SPY found support on its 78.6% retracement on Friday near $384. This level will be a key line in the sand today. If it holds, $390 is in play on the upside, followed by $393 to $393.50.
I expect that latter zone could be resistance, given that it was support all last week.
On the downside, a true break of $384 could put the low-$380s to the high-$370s on the table. That zone was significant support in December.
Nasdaq — NQ
For its part, the NQ is actually holding up pretty well — but “is” is quickly turning into “was.”
Breaking 11,950 puts the NQ below last week’s low, as well as the 50-day and 200-day moving averages.
On the downside, watch 11,850. A true breakdown could send this down to 11,600.
On the upside, the level to hold and/or regain is 11,950. Over 12,000 could put 12,220 in play.
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.
MRK — Long from ~$110 and (disappointing action as it was oh-so-close to our first target, missing by a few dimes) — Ideal stop is clearly defined near $105. Initial target for ⅓ trim is $112.50.
Natural Gas, UNG or /NG — First target hit at UNG ~$10 and NG at 2.95 to 3.00.
Now /NG needs to hold the $2.40 to $2.50 mark in order for bulls to stick with this one. If it holds, I would love to see Friday’s highs hit again (the target of our prior trim).
AMD — Long on weekly-up over $81.63 — We got a third trim in AMD at $86 but not quite another trim at $88. That’s okay. B/E stop or full exit is fine.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Relative strength leaders →
NVDA, CRM
PANW, FTNT
SMCI, AVGO
WYNN, LVS → would love a reset to the 10-week ema
GE → would love a reset to the 10-week ema
FSLR
AQUA
TSLA
SBUX, ULTA, NKE
AEHR → volatile!
MELI
AXP → would love a reset to the 10-week ema
BA & Airlines — AAL, DAL, UAL
CAT
Economic Calendar
None. (CPI Tomorrow!!)