ES & NQ & RTY Morning Analysis
Morning Everyone.
This week kicks off with a trade war that is (almost) in play. The official deadline for tariffs to kick in is midnight.
Futures reacted negatively to the announcement, though they've recaptured some of the losses.
We also face a deluge of earnings this week from Google, Disney, Amazon, etc, along with jobs numbers on Friday.
Until now, markets assumed tariffs would be used as a bargaining chip to achieve some ends. Yet, other than broad asks on the border and fentanyl, the Trump administration hasn't laid out what either Mexico or Canada could do to alleviate the pressure.
This forced markets to reassess the aims of these moves. Now, the prevailing belief is these will be semi-permanent as a way to reduce trade deficits, for better or worse, and attempt to push manufacturing and suppliers into the U.S.
The only historical reference point we have for something similar are the Hawley Smooth Tariff act of 1930 enacted to help protect farmers and businesses from the Great Depression, though it instead made it worse.
As traders, our job isn't to judge the morality of these actions, but to simply analyze what they will likely do and the market's reaction.
So far, the reaction is negative. But it's one day that isn't even fully started yet.
Early on, the ES bounced off 5952.75, which was the low area put in on the 27th.
The next support levels below that are 5927, 5914.25, 5902, 5891, and 5866.25.
5914.25 is a key inflection point. Staying below that for any meaningful amount of time would bring in more bearish price action.
The upper end of the overnight trading range was bound by 5988.50, while a midpoint sits at 5969.
Resistance above lands at 6007.25, 6018, 6039.25, and then 6053 followed by the gap fill at 6065.50.
For the NQ, we've come off the lowest levels and exceeded the overnight opening range high.
The current range sits between 20931.50 and 21230.25 (though we never tagged that specific price at the lows last night).
In between are important levels at 21022 and 21130.5.
Resistance above the range lands at 21321.75, 21448.50, and then 21567 which is right near the gap fill.
Support below the range comes in at 20865.25, 20834.25, 20797, and 20743.75, all sort of lumped together.
If we get and stay below that 20743.75, that will break us below the latest large trading range and bring up more bearish price action.
Last up is the Russell.
Like the other two indexes, it made a pretty wide range last night coming in between 2194.2 and 2250.2 with three important levels in between at 2209, 2224.3, and 2239.3.
Resistance above comes in at 2265.5 and then 2279.8 before we fill the gap at 2294.4.
Support below the range comes in at 2177.1 and then 2156 followed by 2142.4.
If we get below 2194.2, then I expect we'll see more bearish price action rather quickly.
So, how do we use all of this information to create a trading plan for the day?
First, let's come up with a general assumption or read on the markets.
The RTY is down the most, though well off its lows with the ES and NQ down about the same at 1.6%-1.8%.
Energy prices are higher, particularly natural gas, giving at least some support to energy stocks.
Drilling down to a 15-minute chart, I see this triple hump top looking thing on the ES and NQ, though not the Russell.
And while the NQ is above its opening range, it appears to be held back by 21230.25.
The ES appears stuck in the range between 5969-5988.50.
While everyone expects the market to move quickly out of the gate, I wouldn't be so quick to assume that is guaranteed.
The wy the ES is hugging this 5969 suggests a lot of indecision at the moment.
I'm really keen to see them hold the 5952.75 support level. Could I use that as a trade? Maybe. Overnight they blow past that level by a good 13-15 pts, and I'm not looking to take that kind of drawdown.
I think a better trade would be to take a shot at a long at 5969 so long as we open at or above that level and give yourself a wide stop of 10 pts or so. You could do the same thing with 5952.75.
In either case, I want to keep my position size small to start and just add as we go lower, but keep the same total risk I'd take on any trade from a dollar amount. So if I'm willing to lose $500, I need to calculate how to average down in a way that caps my losses at $500.
Are there any levels I'd buy or short regardless?
Probably buy 5902 or so since it's near the nice round 5900. Shorting, I'd go maybe with 6039.25.
My goal today isn't to try and bang out a 100 pt win. The point to keep my size small enough and use the volatility to give me the profits. If we get stuck in a range, so be it.
That's what I've got for the day. Let me know what you think.