The Rally Has Traders Rethinking the S&P 500

Pumping our brakes here after a huge Thursday.

Clues were piling up about today’s action. It started when the VIX was negative going into the open (and shortly after the open) despite the pounding in the ES and SPX. Then the dollar began fading. 

At that point, a long S&P was the perfect trade and it was highlighted to (near) perfection in the Technical section below. 

Everyone who caught a huge chunk of gains on Thursday might want to consider just taking Friday off. I try to do that whenever I hit a huge winner so it doesn't go to my head and so I don’t give back the gains. 

There’s a lesson in that, you know. 

Anyway, we have a bunch of bank earnings on Friday morning: JPMorgan, Citigroup, Wells Fargo and Morgan Stanley. If the market reacts well to this, it could be pedal to the metal and up we go.

That said, I can’t help but notice that the SPX and ES are stalling right near ~3700 and the declining 10-day ema/21-day sma. 

Technical Edge — 

• NYSE Breadth: 79.5% Upside Volume (but was 93% downside at open)

• Advance/Decline: 70% Advance (was 95% decline at the open)

• VIX: ~$32

Game Plan: S&P

Working from the top down with the S&P (Weekly, daily, intraday timeframes) with a trade on the ES and SPY/SPX at the bottom of each in bold. 

Cheers. 

S&P 500 — ES (Bigger Picture)

Here is the “bigger picture” look with the weekly chart, where the ES traded down and tagged the 50% retracement and the post-Covid breakout near 3500 after a five-wave “ABCDE” decline. 

That was an excellent move, but despite how good it was, notice how we’re not exactly out of the woods just yet on the daily chart:

Notice yesterday’s hesitancy at the 10-day ema and the overnight rejection from the 21-day. 

Thursday reversal was robust on heavy volume (the third most daily volume of the year!) and came at a key time and place. That said, the S&P needs to stay strong going into earnings if bulls want to mark this as the low. 

On the 4H charts, notice how the ES has struggled with 7% to 8% rallies since the mid-August high. Will it finally break the trend or are we in for another knee-capping?

ES — The Trade