Amazon Missed and The Markets Hissed
Yesterday saw a bull trend from the open reverse mid-day at the top of the trading channel. My chart notes appear above. Amazon is getting the blame for missing their numbers and guiding lower for the third quarter. As it is one of the highest market-cap stocks in the indices, it has a big impact on the numbers this morning.
But that doesn’t explain everything. The market reversed midday, not after the bell. After the bell, it just accelerated. Instead, the market struggles to get from the lower back into the upper half of its longer-term channel. Can it? Will it? That is the question for August.
That brings us to our five-day line stop for the S&P 500 futures Navigator Swing position. The Founder’s Group stopped out last night at 4393.75 for a nice profit. Since there is no overnight stop for calls, I am advising you to hold those positions today. Month-end and the first few days of the month typically have a positive bias. As long as the market holds above the daily 21-line, and given that our stops were triggered in the overnight market, it makes sense to give the market a day to digest everything. When dealing with futures and the accompanying leverage, there are no such luxuries. The market hit an all-time high yesterday, so getting too negative too quickly makes no sense.
Today’s Plan
The market will open with a true gap down, so Gap Rules apply this morning. Overnight inventory is 100% net short, and it won’t take much to spook these traders. While the current 29 handles lower is noteworthy against the backdrop of new highs, there is plenty of context around that price that tells us that it could certainly be far worse.
We are currently 15 points from the ONL at 4370.75, and that ONL has four TPO’s across, telling us that sellers had difficulty getting prices lower past that level. Furthermore, we are opening out of balance with yesterday’s RTH range, but certainly still well within where value has developed over the last four sessions.
Note how the ONH topped out very close to settlement, which was also the multi-session high yesterday. Continue to carry this level forward as it is still in play. Overnight halfback is also making an appearance today as it’s always noteworthy on expanded overnight ranges that are gapping strongly.
When considering early trade, note how far from the ONL we have already come. This reduces some of the shock and awe as overnight inventory is somewhat already corrected. This makes sense as the gap is due to a single stock that impacted the NASDAQ 100, thereby also impacting the S&P 500. This is different from a more systemic catalyst which would have driven futures much lower.
Watch the overnight halfback closely at 4388 as an early barometer of strength. An opening drive that can overtake the line and hold it could easily have overnight shorts on the run. Today is the last trading day of the month and weekly options expiration. So month-end money manager shifts could distort normal price action.
A.F. Thornton