We're Getting Oversold, but Can Stocks Bounce?

Headline algos are running wild

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Our View

There were some great rallies to sell yesterday, but the indices are extremely oversold. 

I put 5080 in as one of my support levels in the Lean and 5078.75 was the low. Am I surprised at the rally? No, you could see the NQ up-ticking while the ES was down-ticking — notice down below how the Nasdaq breadth was significantly better than the NYSE breadth — and prior to the headlines, both the ES and the NQ were bid. 

Additionally, after the fast headline drop, both indices bounced right away. Like I said in the chat — MPRO: Dboy: (3:13 PM): “algos adjusting to oversold conditions. All I know is every time traders get bullish into the rallies they fail.”

Our Lean — Danny’s Trade

This is Danny Riley’s personal trading plan for the day.

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MiM and Daily Recap

ES Recap

The ES traded down to 5081.50 and rallied up to 5120.25 on Globex and opened Tuesday's regular session at 5107.00. After the open, the ES traded 5110.00, sold off down to 5093.75, up-ticked, then traded down to 5087 at 9:50, rallied up to 5110.50 at 10:20, then sold off down to 5081.50 at 10:40 and rallied up to 5111.25 at noon, then dropped down to 5092.00 at 12:10. After the low, the ES rallied up to 5108.50, sold back down to 5094.75 at 1:10, traded up to a lower high at 5108.00 at 1:30 and then dropped down to 5078.75 at 1:40.

From there, it rallied up to another lower high at 5106.25 and then dropped down to a higher low at 5083.25 at 2:00 before rallying up to 5098.25 at 2:10. Things had slowed before the Powell headlines, but like always the headline news algos took over after Fed Chair Powell hinted at the idea of no interest rate cut, keeping rates higher for longer. 

After the low, the ES rallied all the way up to 5123.25, and not long after that another headline hit saying Israel's War Cabinet meeting has ended, and the cabinet decided to strike inside Iran, which should begin “as soon as possible.” The ES sold off down 5083.25 at 2:00 and then rallied up to 5116.50 at 3:10, sold off down to 5104.50 at 3:20, rallied up to a lower high at 5116.00 at 3:30 and then dropped down to 5093.25 at 3:40 and traded 5104.25 as the 3:50 cash imbalance showed $860 million to sell, sold off down to 5089.75 at 3:59 and traded 5091.25 on the 4:00 cash close. 

After 4:00, the ES traded 5088.00 and settled at 5094.50 on the 5:00 cash close, down 6.5 points or -0.13%, the NQ settled at 18,894.00, up 17.25 points or +0.11%, gold traded above $2,400 and crude oil settled near unchanged at $85.36, as the benchmark global prices have increased 23% since mid-December and nearing their 2023 highs.

 In the end, there was a buy NQ / sell ES rotation. In terms of the ES's overall tone, the ES and NQ acted very oversold but closed weak. In terms of the ES's overall trade, volume was high: 412k traded on Globex and 1.640 million traded on the day session for a total of 2.052 million contracts traded. 

Technical Edge

  • NYSE Breadth: 24% Upside Volume 

  • Nasdaq Breadth: 50% Upside Volume

  • Advance/Decline: 34% Advance 

  • VIX: ~18 

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Guest Post

Topic: PTG 3 Day / Taylor Cycle

Author: David D Dube’ (a.k.a. PTGDavid)

Prior Session was Cycle Day 3: Price closed below the Cycle Day 1 Low (5150) which constitutes  a “failed” 3 Day Cycle. We knew given the magnitude of the decline on CD2 that it was a steep-hill to reclaim the CD1 Low. Range was 44 handles on 2.036 contracts exchanged.

 …Transition from Cycle Day 3 to Cycle Day 1 

This leads us into Cycle Day 1: Average Decline for CD1 measures 5069. There does remain an opportunity to negate the failure by recovering 5150 during today’s session, IF bulls can clear & convert 5125 handle. This would provide a window of opportunity for reclaiming. Average Range for CD1 is 57.50.

As always, our tactical trade plan remains unchanged…Stay in alignment with dominant intra-day forces. As such, scenarios to consider for today’s trading.

Bull Scenario: Price sustains a bid above 5100, initially targets 5125 – 5130 zone. 

Bear Scenario: Price sustains an offer below 5100, initially targets 5075 – 5070 zone.

PVA High Edge = 5105       PVA Low Edge = 5090         Prior POC = 5100

*****The 3 Day Cycle has a 90% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history. 

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Economic Calendar

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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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