Earnings Begin In Earnest. Buy the Dip in the S&P?

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Our View

By now, we have been conditioned to “expect the unexpected.” I think I may have mentioned this, but I know a guy from Citadel that used to use my S&P desk back when I was on the floor.

Over a year ago, he told me that his group was running 21 algo and HFT systems and that they were one of 11 desks. He didn't say all of them were program desks, but did mention that a few of them run the 'market pricing desk.’

When I look back from my days at my S&P desk, I know the advantage we had back then is gone forever. Electronic trading — which was supposed to level the playing field — killed the floors.

For what it’s worth, at the time the PitBull totally predicted this would happen. He even wanted to take out a full page ad in the Wall Street Journal condemning program trading. He used to say, “The index buy and sell programs you do for UBS are going to kill the S&P some day, just like it did the XMI.”

Fast forward and I think he was spot on. When the ES drops 20 points in 1 minute and you ask “What the hell was that?” and no one says anything, we all know what it was...a stop-run program to shake the little guys out.

Our Lean

I haven't exactly been bearish lately...have I? Part of the reason is because of the push up from 4000, which has lacked any significant retracements. Some would say the lack of volume is a negative, but it has definitely worked in favor of the upside.

At least for right now, it’s working well for the bulls, as every dip has been bought and Friday's close seemed to indicate higher prices. Keep in mind, earnings season will really dial up this week.

Our Lean: 

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MiM and Daily Recap

The ES traded up to 4177.50 on Globex and opened Friday's regular session at 4166.25. After the open, the ES rallied up to 4189 at 9:59, then fell out of bed as the sellers hit every rally until the ES traded 4138.75 at 12:47. From there, it rallied up to 4153, then dropped down to 4138 at 1:33. The ES rallied back up to 4159.75 at 2:52 (as the VIX fell to $17.32), then pulled back down to 4144.25 at 3:17 and rallied up to 4165.75 at 3:46.

The ES traded 4163.50 as the 3:50 cash imbalance showed $326 million to sell, traded down to 4160 at 3:51, ripped up to 4175.25 at 3:56 and closed at 4163.25 at 4:00. The ES settled at 4171.75 on the 5:00 futures close, down one point or -0.02% on the day.

In the end it was a two-way street with the win going to the buyers. In terms of the ES's overall tone, it was bad all day until the VIX started falling under $17.50 and that's when the ES started its late-day rally. In terms of the ES's overall trade, volume was on the high side for what we have been seeing, at 1.8 million contracts traded.

Technical Edge —

• NYSE Breadth: 41% Upside Volume

• Advance/Decline: 37% Advance

• VIX: ~$17

The strength in the bank stocks — like C and JPM — combined with “Fry-day” to give us some afternoon strength into the weekend.

Now coming into a fresh week, earnings are really set to pick up. While the bulls have mostly been in charge, keep in mind who the leaders are. Just seven stocks — AAPL, MSFT, META, GOOGL, NVDA, AMZN, TSLA — have generated 88% of the S&P 500’s gains so far this year.

While we could see some rotation into other sectors to help support the S&P, investors must be aware that a rug-pull in these names could throw some cold water on the S&P.

S&P 500 — ES

• Upside Levels: 4172-78, 4190, 4200, 4217-25

• Downside levels: 4142.50 (March high) + 10-day, 4115, 4095-4100

SPY…

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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.

FSLR, NVDA, QQQ, AAPL, down to runners. Congrats, all. Great sequence!

1. AAPL — [premium only]

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3. [premium only]

4. [premium only]

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders → Tech remains absolutely the strongest group lately.

1. NVDA, AMD

2. [premium only]

3. [premium only]

4. [premium only]

5. [premium only]

Economic Calendar

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!