Weekly Wisdom: Rotation Leads To Selling

Greetings fellow traders and welcome to your July 25th edition of Weekly Wisdom: Levels to Know and Moves to Look For!

Now let’s get to what we’re currently seeing in these volatile markets and what we have our focus on going forward.

Taking a look back on this week, July 22 – July 26:

• Markets traded lower this week after last week’s bearish engulfing candle took place, which had the bullish rotational flow turn into more net selling.
• The selling mainly took place on Wednesday after $GOOGL and $TSLA reported earnings that were not quite perfect for investors, leading to the $QQQ having the worst down day since December 2022.  
• Data for the week started on Tuesday with a miss for existing home sales coming in at 3.89 million vs 3.99 million expected. The Richmond Manufacturing Index was also a miss at -17 vs -7 expected.  
• Wednesday began with a beat for the goods trade balance at -96.8 billion vs -98.8 billion expected, as well as a beat for prelim wholesale inventories m/m at 0.2% vs 0.5% expected. We then had a miss for flash manufacturing PMI at 49.5 vs 51.7 expected, but a beat for flash services PMI at 56.0 vs 54.7 expected. Later in the morning, new home sales missed at 617,000 vs 639,000 expected.  
• Thursday gave mixed data in the morning, with a solid beat for advance GDP q/q at 2.8% vs 2.0% expected, while durable goods orders m/m had a large miss at -6.6% vs 0.3% expected. Advance GDP price index q/q was also a miss at 2.3% vs 2.6% expected, while core durable goods oders m/m was a beat at 0.5% vs 0.2% expected. Weekly unemployment claims were fairly inline at 235,000 vs 237,000 expected.  
• Friday, July 26 ends the week with PCE, core PCE price index, personal income m/m, and personal spending m/m at 8:30 a.m. ET. These are followed by revised University of Michigan consumer sentiment and inflation expectations at 10:00 a.m. ET.

Here’s what we are eyeing next week, July 29 – August 2:

Level Highlights:

• $SPX futures had a huge sell day on Wednesday with $TSLA and $GOOGL failing to impress investors on their earnings reports the night before, with both names trading significantly lower.
• $TSLA had the worst down day since September 2020, with the $QQQ having its biggest down day since December 2022.
• Wednesday gave a close down at 5472 in $SPX futures, which means our uptrend is officially broken for now, with some real damage done.  
• Support was found Thursday morning with a low at 5433, which at that time was over 100 handles extended to the downside from the daily 5MA, an area often considered “extreme extension” territory.  
• $SPX futures were able to rally for a bounce on Thursday, trading as high as 5533 during the session.  
• Resistance on the upside for further bounces on $SPX futures can be found at 5550, 5600, and 5625.
• Support on the downside on further selling for $SPX futures can be found at 5400, 5375, and 5325.  

Upcoming News:

• Monday, July 29 does not bring any meaningful new data to start the week off.  
• Tuesday, July 30 starts the week’s data off with CB consumer confidence and JOLTS job openings at 10:00 a.m. ET. $MSFT reports earnings after the close 
• Wednesday, July 31 is a big day next week, which starts off with ADP non-farm employment change at 8:15 a.m. ET. This is followed by the Employment Cost Index q/q update at 8:30 a.m. ET. Next comes Chicago PMI at 9:45 a.m. ET, followed by pending home sales at 10:00 a.m. ET. All of this leads to the afternoon where we get the FOMC statement / Federal funds rate decision at 2:00 p.m. ET, followed by the FOMC press conference at 2:30 p.m. ET. $META reports earnings after the close
• Thursday, August 1 brings more data, starting off with challenger job cuts y/y at 7:30 a.m. ET. Next comes weekly unemployment claims, prelim nonfarm productivity q/q, and prelim unit labor costs q/q at 8:30 a.m. ET. These are followed by final manufacturing PMI at 9:45 a.m. ET; then ISM manufacturing PMI, ISM manufacturing prices, and construction spending m/m at 10:00 a.m. ET. $AAPL and $AMZN report earnings after the close 
• Friday, August 2 ends the busy week with average hourly earnings m/m, non-farm employment change, and the unemployment rate at 8:30 a.m. ET. Lastly, we’ll see the update for factory orders m/m at 10:00 a.m. ET.  

Here’s Your Chart of the Week:

Via Bloomberg Finance L.P., J.P. Morgan:  While some rotation has started to take place over the past couple of weeks, positioning shows there is certainly more room for further rotation with many traders potentially still under-positioned in the IWM compared to SPY.

Source

SPY Daily Update:

$SPY gave a big sell day this past Wednesday following the $GOOGL $TSLA earnings reports. Support at 537 was able to give a solid bounce area with the gap now filled – 546, 550, and 554 are now resistance on upside bounces. 532 is another support area to watch on further selling.

SPY Weekly Update:

$SPY weekly chart gave a bearish engulfing candle last week, which is often a warning sign and can lead to further selling – as it did this week. We are starting to see a solid bounce off of 537 support, but our weekly chart is certainly damaged for now until we get a close back over 555.

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-Patrick Hawe

Disclosures

Patrick Hawe’s current positions:

*As of 2:39pm ET July 25, 2024

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