Positioning for a Possible Year-End Rally
Just here me out for a minute.
Technical Edge —
NYSE Breadth: 86.2% Upside Volume
Advance/Decline: 89.8% Advance
VIX: ~$23.60
The Nasdaq climbs 7.3% and the S&P climbs 5.5%, yet we can’t drum up a 90/90 upside day on breadth and Adv/Dec?
That’s somewhat bothersome on the bull side. In any regard, I have a thought:
After yesterday’s report, my gut said that the Fed would ease the pace and size of its rate hikes. That now seems to be the case.
In just a few hours, we went from odds of 50/50 for a 50 bps hike vs. 75 bps hike in December, but now those odds stand at an 83% chance for a 0.5% increase. Admittedly, the Fed will need more than one lower-than-expected inflation report to tap the brakes (pivot). And while I’m not a macro-economist, some things are starting to line up.
My thought is much simpler than the macro theories. I’m seeing:
The uptrend in the dollar has failed.
Yields are coming down and the downtrend in bonds has failed.
A smaller rate-hike is expected for December (although, it’s still a rate hike).
The anticipation of a less hawkish Fed could drive equities higher even if the Fed hasn’t actually pivoted yet.
This is a biggie: Think of all of the funds that are underwater and/or underperforming the S&P 500 this year. What better way to make up that performance than a big rally?
Simple approach (but not for everyone’s strategy):
For those that want to be outright long and position for a larger rally, consider buying a dip in the next 1-3 days and parking a stop-loss against this week’s low. I don’t know what kind of dip we’ll get, but seemingly every time the market rallies this hard, we do get one within a few days.
S&P 500 — ES
“3928 is the 2x weekly-up level. If we see that today or tomorrow, we could be looking at a move to 4000, then to 4050-60 and the 200-day.”
I did not think we would rally so hard yesterday, but who would have? We nearly tagged 4,000 in Globex and the S&P would be doing us a favor if it’d ease up a bit and give us a chance to get long.
It did provide some dips yesterday to the 10-ema on the 5- and 10-minute charts, so I’m grateful for those opportunities.
Bigger Picture: It’s simple. The ES must hold 3925 to 3930 to remain bullish.
On the upside, 4060-ish is in play if it can get above 4000, but that’s a big, big round number for traders right now. I would still expect an initial “sell” at 4000, even if it’s just for 10+ points.
ES — The Trade
It’s hard for me to buy the S&P on a gap-up after a 200-point rip. Instead, I’d love a pullback to ~3925, +/- a few points.
There we would have the 10-ema on the H4 chart and the high from the last two weeks.
SPX (SPY)
As for the SPY/SPX, I am watching the 30-minute and H1 charts.
I want to see if we can even get a dip to the 10-ema on the 30-minute chart, especially if it lines up with yesterday’s intraday resistance near 3925. If we don’t get it, we may need to settle for playing the 15-min charts.
If we do get a bit of selling pressure and support does not come into play on the 30-min chart, then the H1 10-ema has my attention. Especially if it lines up with last week’s high near ~3912.
SPY — Daily
SPY needs to hold $390 and dips to this level can be bought — for now.
TLT
Bonds have been trapped in a brutal downtrend, but yesterday’s move vaulted it over this area.
I’m half tempted to buy today’s pullback to $97.50-ish and stick a stop against the 2022 low (call it $91.50) and just risk $6. The ideal buy would be ~$96, as it’s against the 10-day and 21-day moving averages. Those should hold if bulls are going to take control.
It will have a big test at $100 (recent resistance + the 10-week & 50-day moving averages) and like everything else that was or is in a downtrend, it will have more tests beyond that if it pushes higher. Still, there’s an attraction to having a defined-risk setup.
BMY
Keep a close eye on ~$78. If bulls are going to remain in control of BMY, they will hold this level. I don’t want to see it below $76.25 (last week’s low).
If it sets up and bounces, traders can trim on $80 to $81.
MCK
MCK has treated us so, so well this year, that I feel greedy looking at it again. But yesterday’s ~4% dip into the $370 breakout area and 10-week moving average has my attention.
If it can open below and regain $372, we may see a push back up toward $380 and the mid-$380s. However, I’m struggling with the best entry here.
I would love a tag/break of yesterday’s low and a reclaim to get me long. Even a test of the 50-day would be okay, so long as it holds. In that area we also have the daily VWAP measure and the 61.8% retrace.
This stock has been the epitome of relative strength.
Below $360 and I’m uninterested.
Go-To Watchlist
*Feel free to build your own trades off these relative strength leaders*
Numbered are the trades that are open. g
Bold are the trades with recent updates.
Italics show means the trade is closed.
Open Positions
GIS — Down to ⅓ to ½ after $82 trim. Next trim is $85 to $86, but seems less likely given the climate. Stop at $78 if you’re still in.
MCD — “This stock has not touched its 10-day moving average in almost a month. If we see it today, I’m a buyer.”
Trim some $275/$276. Can be down to ½ position if we see $277-278
Can still look to buy $271/the 10-ema
Relative strength leaders →
Top Picks (these have been Robust lately). Money rotated out of the winners and into beaten-down tech, as you can see many growth stocks roared yesterday.
LNG
MCK
CAH
TJXm
CI
CCRN
GIS
LPLA
REGN
ENPH, FSLR — solar has strength
VRTX
UNH
MRK, AMGN
XLE — XOM, CVX, COP, BP, EOG, PXD
NOC
Economic Calendar
