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I Want to Talk About the Trading Environment
Now Deutsche Bank is stressing the system
Danny Riley
March 24, 2023
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Our View
I want to say something right off the bat.
This environment is not easy and it has not been easy. I have said many times, I am a bull at heart and my long-term readers know this. Trust me, I would much rather be buying the dip with a low VIX while my friends and family watch their 401Ks go higher every month.
I’d prefer that because it’s a lot easier, too!
We have been engulfed in a bear market for the last five quarters. Traders are at a crossroads as “don’t fight the Fed” and “don’t fight the trend” continue to clash. Tech stocks continue to rip while the Fed continues to hike.
The last two days have featured massive ranges in the ES — 107.50 points on Wednesday and 91 points on Thursday — as the machines have run through both the highs and the lows, hitting everyone’s stops. This frustrates the masses, as it toys with both the longs and the shorts.
So what’s my point in all this?
Pay attention to the environment! It’s one of the less discussed necessities for successful trading. No strategy works 100% of the time (unless you are one of Ken Griffin’s quants), so you have to be aware of when your system or style thrives or dies.
If you are crushing these environments, good for you! These ranges are massive and profitable if you’re hitting them correctly. If you’re not crushing these environments, then consider:
Cutting your position size in half (or more).
Trading less. Only wait for the true A+ setups for your style.
Stop trading until the environment improves for you. Our No. 1 job is to stay in business!
Today’s intro is a bit long and I apologize for that, but some of this needed to be said. Onto Deutsche Bank.
Our Lean
As of 7:30 a.m. ET, the ES is trading ~3950 and is down about 30 handles or 0.72%. That’s as European equities come under pressure, while CDS prices for Deutsche Bank (DB) are ballooning. DB is Germany’s largest bank and the 8th largest bank in Europe.
The worry over the banks is not over.
Yesterday, DB took out its 2023 low and its NYSE counterpart is down 10% this morning. The SPDR Regional Bank ETF (KRE) took out 7 days worth of lows yesterday and in today’s pre-market, it’s at a YTD low. Same with the XLF, which is also nearing its 52-week low from October.
This situation is bad and even though I don’t think it’s another 2008, it’s never a good sign when the banks are blowing up.
Our Lean: The ES faded 91 handles from the 11am high to the 3pm low. It retraced half of that decline (50%) and is fading again in the pre-market. This leaves us all in a tough spot.
While I think we could pop into 9:30 or just after the open, I am inclined to wait for that rally and to sell it. That said, it is Friday and you all know that it has the potential to become Fry-day thanks to all the 0DTE players out there — even if no one truly wants to go home long into the weekend given the bank issues.
3950 is key here. Holding it is a win for the bulls. Breaking it is a win for the bears. Levels below — and chinstraps on!
MiM and Daily Recap
I’m going to keep this short. The ES opened at 3996.50 and rolled higher to 4039.50 just after 11:00 am to its high of day. It pulled back 42.50 points into its 1:15 low, bounced about 15 handles and puked 60 points down to 3948.50 at 3:20.
The ES bounced ~32 points and traded 3980 at 3:50 as the MIM showed $150 million for sale. It bounced to 3995, but sold off and traded 3975.75 at 4:00. At 5:00, it settled at 3987.50, up 7.50 points or 0.2%.
In the end, the ES somehow clawed out a positive finish on the day despite the volatility. In terms of the ES’s overall tone, it was strong early and incredibly weak in the afternoon. In terms of the ES’s overall volume, it was higher at 2.16 million contracts traded.
Technical Edge —
NYSE Breadth: 37% Upside Volume
Advance/Decline: 35% Advance
VIX: ~$24.50
S&P 500 — ES
Key Pivot: 3950
Downside levels: Globex low, 3928-30, ~3900 (more broadly 3885 to 3905) and 3840.
Upside Levels: 3966 + 10-ema on H1 chart (below) 3995-4000, 4009, 4025
Daily above, 1-hour chart below:
ES 1-hour chart
SPY
Despite yesterday’s volatility, the SPY closed higher by 0.27% on the day and the QQQ climbed 1.2%. Impressive. On the weekly chart, you can see why the bears want to keep the SPY below last week’s high of ~$396.50.
The big question is, can the SPY regain yesterday’s low of $390.35 and stay above it or will it reject it and act as resistance?
Upside Levels (SPY): $390.35 (yesterday’s low) to $391-ish prior support, H1 10-ema, $396.50 (would be impressive to get there today).
Downside Levels (SPY): $389 to $390, $387.50, $385 to $385.50, $380 (I’d be surprised).
SPX
Key Pivot: 3919
Upside Levels (SPY): 3965, the 10-ema on the H1 chart, 3988-4000.
Downside Levels (SPY): 3895-3900, 3860, 3858, 3843.
NQ
Tech remains the best-looking asset out there right now.
Upside Levels: 12,880, 12,920-30, 12,985-13,000.
Downside Levels: 12,675, 10-day ema, 12,440
KRE
Banks are driving the story right now. In KRE, watch ~$42. It needs to regain it, otherwise $38.29 could be in play.
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 — Down to roughly ¼ size here trimming $213-$215 and as FSLR got all the way to $218 yesterday. Congrats!
I am completely out of FSLR on that push, but if still in, use a B/E or better stop. As always, ¼ position = runners, which = manage how you’d like!
AAPL — Can move to a B/e Stop regardless of how much or if you trimmed AAPL at all. $161 to $162 was trim-worthy yesterday based on:
As for upside, it all depends on timeframe. If shorter term, anything over yesterday’s high warrants a trim. If longer term, you’ll want $160+ and ideally something close to $164.
TRIP — short from 18.90 — Initial target was $18.50 to $18.60 for initial trim, out ½ or more at $18.25-ish.
Technically saw sub-$18.60 yesterday. If you did not trim there, trim on any open below yesterday’s low of $18.57
Stop at $19.40 or B/E for those that don’t want to give any back now.
AMZN** — Fed-day tomfoolery on full display. Keep an eye on that breakout trigger around $101. At this rate, want a daily close back above.
A rotation over this level opens the door to $104, then $108-$110.
On the downside, risk could be clearly defined down to ~$98 for conservative bulls and ~$95 for aggressive bulls who use a wider stop.
Go-To Watchlist
Feel free to build your own trades off these relative strength leaders
Relative strength leaders →
NVDA, AMD, AVGO
CRM, GOOGL
MSFT
PANW, FTNT
FSLR
GE
DKS
AQUA
ULTA
AEHR → volatile!
MELI
Guest Post
Today’s Guest Post is from our friend Cary at Artac Advisory. He will be a regular contributor on Fridays. His note on the S&P 500 (ES) is below, along with an accompanied video, found here.
“In this 6-minute video we illustrate a longer-term wedge-pattern in progress within the SP-500 Emini, offering you trend-defining support and resistance levels accompanied by descriptive charts. It's a two-sided congestive framework - and we provide the pivotal levels through April.”
Economic Calendar
