Hello and welcome to another installment of my daily e-mini trade plan. For any new readers, welcome! In this newsletter I discuss levels, scenarios and market analysis for the S&P500 market.
Hello all,
Every now and again I like to take a top-down approach and look at the market from the long term perspective working back down to the intraday timeframe.
Chart A above visualizes the auction on the weekly timeframe. We can draw two conclusions looking at this chart.
4200 is a long-term “pivot” level dating all the way back to the bull market of 2021. This level has birthed multiple several hundred point slumps and rallies, and has acted as a turning point each time it has been visited in the last 3 years.
The S&P500 is the same price we saw 1 year ago. We’ve remained range bound from 3800-4200 for 12 months now!
So, is there a reason we should break above 4200 and continue on towards new highs? Well maybe if you believe that the FED is going to start slashing rates soon. Powell and friends are in a catch 22. The employment rate remains at all time lows at 3.5% and while inflation seems to be sinking, core inflation is more “sticky” around 5%. If the FED slashes rates inflation spirals out of control. If the FED keeps rates high the US is headed full force to a nasty recession. I don’t think the fed will cut rates this year unless we find ourselves deep in a recession which I do not think is going to hit in Q2 or Q3. Therefore, I don’t think rates get cut this year, at least until Q4.
And, currently at 4200, the market is pricing in about 100bps of cuts by year end.
This is not to say there will not be more upside from here. After all, take a look at each swing high/low in Chart A. Each real swing high/low has been met with excess even on the weekly charts. We still have not seen this capitulation on this leg up to 4200.
We did see a nice sell-off Friday which appeared pretty weak, in my book it borders on capitulation requirements. It is too early to say for sure if we have seen the swing high at 4190 but I anticipate we may be able to answer that question by the end of this week!
The stock market tracks US liquidity quite well. As seen above, markets have juiced up from the recent liquidity injection from the bank crisis event. This is a key indicator to track for longer term time frames. Liquidity up = market up and vise versa.
More recently over the last two weeks we’ve been kept in this range from 4100-4180 with 4130/40 area acting as the range “pivot” zone.
Key resistance remains the top of this range at 4180 and NQ 13220-13250. Buyers want to takeout this level and/or remain bid above 4156 ES 13000/13050 to keep the bullish narrative alive.
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