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Stock Market Ignores Dark Storm Clouds; Earnings Loom
Patience is key as trading ranges remain tight
Danny Riley
April 25, 2023
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Our View
In yesterday's Our Lean section, I wrote that the ES settled at 4137.75 at the end of March. On the first and second Fridays of April, the ES settled at 4132 and ~4164, respectively and settled at 4153.25 on last Friday's Opex. Basically, it’s gone nowhere.
As many of you know, I am very close to the PitBull. He still does all his work, but similar to what I posted above, he was the one that pointed out a few weeks ago that we were at the exact same prices two years ago.
I have seen this type of price action many times in the past, but it feels like there is a mammoth dark cloud hanging over the stock market/US. The PitBull said it's hard to hold onto positions and I said that’s because “everyone is skittish.”
Let's face it, Covid-19 was the ultimate economic disruptor and the hangover from it seems never-ending. Despite all this, the market holds in. From Goldman:
A “remarkably strong” labor market, China reopening and the lack of further crises from regional banks have all helped to keep stocks range-bound, he says. “I don't mean to say it's been uniformly good news…But issues like deposit flight and credit quality were generally viewed as better than feared” in the banks' latest earnings results.
When it comes to the stock market, the buyers have been burned too many times being long into the rally and are scared — that's right, scared. The laundry list of negatives (as JPMorgan CEO Jamie Dimon highlighted in his recent shareholder letter) hasn’t gone away. Lastly, there’s complacency, lack of interest and lack of faith in the stability of the markets in general.
How do we get past this? I don't know. All I can say is what I said over two years ago: We have never seen anything like what we are seeing today and I'll say it again, this is not the credit crisis or the 2000 tech bubble. We live in uncharted waters, which will hopefully recede some day.
Our Lean
With the deluge of earnings this week, the popular thinking is that the S&P will go down. No one knows for sure what the ES is going to do next, and as we all know, it never does what most people want it to do when they want it to do so.
With this in mind — unless there is some really bad earnings today — I think it will be business as usual. Our lean is to fade the ES on any 15 to 20+ point gap. The other option is buying weakness and the pullbacks.
As for key levels, bulls want to hold the 4135 area, the three-day low. Below that pus 4115 in play, then the key 4098 to 4104 zone.
On the upside, 4165 has been resistance, but the bigger levels are 4175-80 and 4200.
MiM and Daily Recap
The ES traded down to 4133.50 on Globex and opened Monday's regular session at 4153.50. After the open, the ES rallied up to 4264.25 at 10:33, beelined down to 4147 and then made four new lower lows down to 4141 as the NQ fell. At 11:46 the ES was down 0.26% while the tech-heavy NQ was off 0.81%. After a small bump up, the ES traded down to 4139 at 12:17. After the low, the ES traded up to the VWAP at 4150.75, chopped a bit, then rallied up to a new high at 4159 just after 3:16.
The ES traded 4159.50 as the 3:50 cash imbalance showed $1.1 billion to sell, traded 4160.50 on the 4:00 cash close and settled at 4157.50 on the 5:00 futures close, up 2.75 points or 0.07% on the day.
In the end, it was a slow grinder, but there were some decent moves. In terms of the ES’s overall tone, it was firm after the morning selloff. In terms of the ES's overall trade, total volume was 1.28 million contracts traded. Mondays have seen the lightest volumes of the week.
Technical Edge —
NYSE Breadth: 55% Upside Volume
Advance/Decline: 55% Advance
VIX: ~$17.50
S&P 500 — ES
Upside Levels: 4161-65, 4175-80, 4200, 4217-25
Downside levels: 4135-4137 (three-day low + 21-day sma), 4115, 4095-4100
SPY
Bulls need to hold the three-day low and the March high, aka the $409.70 to $410.20 area. Daily-up over $413.07 puts $415+ in play.
Upside Levels: $415 to $416, ~$418.25
Downside Levels: $410-ish, $407.75 to $408, $405.50 to $406
SPX
Upside Levels: 4142, 4163, 4172-75, 4195-4200
Downside Levels: 4110-14, ~4091, 4070-75
NQ
No change to yesterday. Range is incredibly tight.
Upside Levels: Has to clear ~13,125 and regain the 10-day and 21-day moving averages to open the door back up to 13,200+
Downside Levels: Bulls need to hold 12,950
QQQ
Just like the NQ. It’s simple really. QQQ needs to break below $313-ish or above $321. Until then, it’s range-bound. Patience required.
AAPL
Daily-up over $165.60 could get a cash flow trade going, putting $166.75 to $167.25 in play, then $168+.
Aggressive bulls could use a stop-loss near $163.
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.
Down to Runners in GE, CAH and LLY.
AAPL — for those that were swinging AAPL for the longer timeframe, we got our $165 area to trim into and as we continue to tip-toe higher, I’d say down to ½ size here or even less.
Going for $168 to $170 on the next tranche. Raise stops up to $160.
AMD —
DIA — Long from $337.30. Trimmed ⅓ on push over Friday’s high, ~$338.75.
Break-even stop. Want $339.25 for next trim, then $340 to get down to ¼ or ⅓. a
ABBV — long over $161.50 — Trimmed at $162.50 and $163.25
Stops raised to break-even. I want runners to $167+ but earnings on deck soon make it complicated. $165+ is a nice trim spot, but any push over Monday’s high can a good trim spot.
XLV — long from $133.60 — ⅓ trim at $134.75 to $135 as per original plan, $135.50 is ideal
Go-To Watchlist
MCD, PEP & KO, WMT, PG — XLP
ABBV, LLY — XLV
NVDA, AMD
MSFT, AAPL, META
PANW, FTNT
FSLR
Economic Calendar
