Yields Could Save Short-Sellers From "Pain Trade" Today

Bulls are looking at a nice gap-up today.

Technical Edge 

• NYSE Breadth: 60% Upside Volume

• Advance/Decline: 56% Advance

• VIX: ~$17.50

The one question I have for today and the early part of this week is, will they market put the pain-trade on the late short-sellers who sold into the hole — remember on Friday, we said we don’t want to sell into the hole — or will this gap-up fizzle out quickly and the markets roll back over?

I could see either scenarios play out today, so it’s best to prepare for both. (To do so, we’ll use a pivot level, which is noted in the setups below. Above the pivot is good. Below is bad).

I will note that bonds are not playing ball, with the TLT set to open at new 2023 lows and with the /ZB futures at new 52-week lows this morning (and near 10-year lows when adjusting the contracts for the quarterly rolls). That’s got yields up and is something equity bulls need to keep in mind. 

*Please take a look at the weekly setup on the ES to get an idea of one possible longer-term scenario. 

SPY — #KISS

SPY is set to gap-up on the open. Watch for an open above the $437.57 high from Friday. That’s our pivot. If we hold that area, $440+ is possible as they turn up the heat on shorts. Ultimately, the $443s could be in play if they really push it in the early part of this week. 

If the SPY breaks lower and can’t hold $437.57, risk remains to the downside and last week’s low. 

• Pivot: $437.57

• Upside Levels: $440, $441.50 to $442.50

• Downside Levels: $433, $430-$431

SPX

• Pivot: 4382

• Upside Levels: 4400, 4420-25, 4445-50

• Downside Levels: 4336, 4328, 4300

S&P 500 — ES Futures

We have a nice doji stick from Friday and a daily-up rotation during Globex over 4396. However, the ES is struggling with ~4400. 

If we can really hit the gas, it could put the 4435 to 4450 area in play today or tomorrow. If we can’t hold 4396, then 4375, we could revisit last week’s low at 4350. 

• Pivot: 4396

• Upside Levels: 4407, 4435, 10-day ema, 4450

• Downside levels: 4375, 4350, 4320-25

If we zoom out to the weekly, let’s open our mind to the idea that we could see a larger correction. One zone that attracts my eye and my style of trading is the ~4200 zone. 

That’s a big level of prior resistance as noted on the right chart (the weekly), the 200-day moving average (on the left chart) and right in between the 50% and 61.8% retracements (shown on both charts). 

That type of pullback would mark about a 10% decline from the recent high. It won’t likely be a straight drop down — if it occurs at all — but it could be a realistic end point for a much-needed breather amid a seasonally weak two-week stretch. 

NQ 

Perfect doji-daily-up development in the NQ. Let’s see if they can jam it over the Globex high currently at ~14,858.

• Upside Levels: 14,858, 15,000, 15,100

• Downside levels: 14,725-750, 14,600-610

QQQ

The QQQ bounce trade took on a bigger initial drop than we had expected Friday morning. However, it had a solid close and is gapping higher today. Those who are long via the calls we outlined should consider a nice trim if these gap-up gains hold. 

• Pivot: $359.41

• Upside Levels: $362.50, $364.50 to $365

• Downside levels: $357, $354.75

CRM

Quick update on CRM, which gave us a perfect entry off the open (as shown above). We’ve already seen a 25% to 30% gain in the calls. 

Look to trim some if we get a nice opening push here. Ideally, we’d play this up toward ~$210 for our first trim, but the QQQ/broader market will dictate its price action. 

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Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!

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Open Positions