Weekly Winning Streak Could Come to an End

But that's not necessarily bearish

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Our View

I think the nine-week rally ends this week, but that doesn't mean the ES isn't going higher. As mentioned last week, the overall price action since last Wednesday has been institutions selling the big tech names and “smart money” taking money off the table. 

Helping that idea is growing doubt that the big tech stocks that powered last year's rally can keep going up. While there was a Nasdaq reweighting last year, it doesn't seem to have cured the problem. The so-called Magnificent Seven stocks continued to make up a large percentage of the index. 

Last year, the Mag 7 represented about 30% of the S&P 500’s market value and was responsible for much of the index’s 24% gain for the year. 

I understand that we live in a new world trading order where nothing stays the same for very long, but with the big money piling into tech last year, the enthusiasm hasn't dulled. I have always said that the new year — especially after a big move up or down — tends to adjust. 

While I remain bullish, I also think some type of pullback is necessary. 

Over the last couple of months, we have also seen what I call an algo blip. The ES is trending in its range, and out of the blue comes a 10 or 20-point drop. I think this has something to do with order flow, exhaustion, and the low level of bids. They are mini-algo washouts that generally recover quickly, but that's not the pullback I am looking for. I have a feeling we get into some type of lower trading range and just chop up and down. 

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 sold off down to 4777.75 on Globex after Barclays downgraded AAPL — which fell 3.6% on the day — and opened Monday's regular session at 4783.50. After the open, the ES rallied up to 4789.75, sold off down to 4774.00 at 9:50, rallied up to the 4787.75 level at 10:05 and sold off down to a new low at 4773.50 as the continued liquidation in the tech sector weighed on stocks. After the low, the ES caught a bid and short-covered up to the 4794.50 level at 12:09. After that high, more NQ sell imbalances showed up and pushed the ES back below the VWAP at 4788.25.

From there, the ES was able to push back up a new high at 4797.50 at 12:42, sold off down to 4783.50, back-and-filled in a 3 to 5 point range at the VWAP and then dropped down to a new low at 4765.50 at 3:08 as the early imbalance showed over $1.3 billion to buy. After the low, the ES traded in a narrow back-and-fill and then traded up to 4773.75 as the 3:50 cash imbalance showed $7.4 billion to buy. It rallied up to 4788.00 at 3:59 and traded at 4785.00 on the 4:00 cash close. After 4:00, the ES traded up to 4789.50 and traded 4787.25 on the 5:00 futures close, down 32.75 points or 0.68% on the day.

In the end, the unrest in the Middle East and the Barclays Apple downgrade pushed the NQ down more than 300 points. In terms of the ES's overall tone, it was weak. In terms of the ES's overall trade, Globex volume was high at 299k and day session volume was 1.252 million for a total of 1.551 million contracts traded.

Technical Edge

  • NYSE Breadth: 43% Upside Volume

  • Nasdaq Breadth: 46% Upside Volume

  • Advance/Decline: 47% Advance

  • VIX: ~13.75

S&P 500 — ES Futures

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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!

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