After such a powerful and vibrant day such as Monday delivered, one expects the day that follows to be somewhat balanced. For the most part, Tuesday delivered a balanced day for our market proxy – the S&P 500 index. However, the final hour selling, accompanied by closing near the day’s lows, is less than desirable. Also problematic, Monday’s rally volume was average, and yesterday’s volume slightly exceeded it – showing potential distribution. The NASDAQ 100 had below-average volume on Monday – but at least yesterday’s volume on the profit-taking did not exceed Monday’s.
One basic question I ask myself every day is this: are traders buying dips or selling rallies? If the last 24-hours is any indication, they are selling rallies. Perhaps that confirms that a lot of Monday’s gains were associated with short-covering rather than bullish buying. On a positive note, interest rates (the 10-year Treasury rate in particular) backed off for another day. The rate is now back to 1.415%. A subject for another day is why the Federal Reserve needs to “control” rates at all. What is wrong with letting the markets set the rates – unless the government does not like the free-market results? Is this simply another instance where the government does not like the vote (hint, hint)?
Moreover, the Nasdaq 100 is finding resistance at its mean – the 21-day exponential moving average. Simultaneously, the S&P 500 index is finding support at its mean – at least as of yesterday. I get the rotation – and have commented about the health of the market rally broadening out. But it still bothers me to see the leading growth stocks of the day sputtering. I always keep my eye on that – no matter the purported justification.
It is noteworthy that overnight traders could not drive the market lower, at least when I started this writing. I carry that forward into today. Traders are net-long overnight, but we are trading near the Globex session’s lows, so it does not give us a lot of information about this morning’s trading, except that it confirms that the short-term money is selling rallies – even when they occur overnight. There are also some poorly positioned longs from the Globex session.
One needs to give the benefit of the doubt to the rally and the launch from a potential 20-week cycle low. The last few day’s actions should be a brief consolidation to move higher and test the downtrend line from February. The line is on the chart above – prominently displayed in red. But then there is the old saying: shoulda, coulda, woulda… We could be forming a large triangle – and triangles are hard to predict.
The result of all this for us is that we profitably stopped out of our Nasdaq 100/QQQ positions at the close yesterday. We are on the verge of stopping out of all of our positions this morning – as our XLF, XLE, and S&P 500/SPY positions are sitting right at or below their stop levels. I prefer to honor the stops on a closing basis, but I will give the market an hour from the New York open to make a decision – so check your emails at 10:30 am New York time. I will let you know either way.
Today’s Plan
As you can see from the chart above, the Navigator algorithm system labels are flashing a lot of yellow. The 3850 level on the S&P 500 futures is a key support level, and I will monitor whether the S&P 500 can maintain it. I will flow the information through analogously to our remaining XLE and XLF positions. Given an impressive pivot higher, I may add to our positions in the Founder’s Group. Otherwise, I would rather honor the stops, lock in our remaining profits from Monday and start with a clean slate.
Overnight futures were higher when I began writing this but have dropped slightly on a couple of economic reports. Preliminary employment data for February from ADP showed 117,000 jobs were added. That is about half of what had been expected – a disappointment. Interestingly, 10-year rates jumped a bit on the news.
Should we open outside of yesterday’s range, gap rules are in play. Watch yesterday’s low at 3865 as a potential entry for rotation back up into yesterday’s range. A rally to and rejection away from yesterday’s low is a potential short and will be my trigger to exit on all of our remaining long positions.
Long trades would potentially set up only if acceptance is found back above yesterday’s regular session low at 3865. I am monitoring the value area (where 70% of the volume occurs). So far, it maintained Monday’s level, which is bullish, but if the value were to move lower, it would confirm a more bearish scenario. Yesterday’s value area low is around 3878, with the high at 3898. If we roll back up and through yesterday’s low, the value area low may provide additional resistance.
A.F. Thornton