The S&P 500 futures (ESZ19:CME) closed at 3109.00 Wednesday, four points below its opening print of 3113.25, after settling at 3118.50 Tuesday. Its trading range (3090.75 – 3118.50) expanded, despite the highest print being lower than the previous day’s close, before closing in the middle of its range.
We remain short three contracts at an average price of 3126.50. Closing below its 8:30 CT opening print for a second day in a row, coupled with failure to hit yesterday’s close despite an increased trading range, sends a message; look for some continued overnight weakness.
The MiM Close
Just before noon CDT, a headline hit the tape saying that phase one of the China trade deal could be delayed until next year. Subsequently, the ES took a nosedive down to a new low, and double bottom, at 3090.75. The futures spent the rest of the session trying to recover the losses.
Going into the final hour, the ES had rallied back up to 3107.25, and traded above short term moving averages for the rest of the day. The futures started to run out of steam when the MiM reveal came out showing $695 million to sell MOC, but stayed steady, trading around the 3107 area.
The ES would then go on to print 3108.25 on the 3:00 cash close, and 3108.75 on the 3:15 futures close, down -9.75 handles on the day.
In terms of the days overall tone, stocks traded weak, and that weakness was highlighted by negative trade headlines. In terms of the days trade; volume was higher than it’s been in a while, with 1.6 million contracts traded.
Trade Headlines and FOMC
Summarizing today’s trading revolves around a couple words, “overextended” and “Fed Talk”. Face it, a couple days in a row closing lower than the opening print establishes the beginning of a trend. Despite the markets rallying before the Fed minutes showed little chance for additional decreases in interest rates, it was obvious, prices wanted to go lower.
After being overextended, the markets chose to stop heading south at an expected low side support level around 3090, before recovering back to the middle of its daily trading range a couple points above the VWAP. All told, those who took advantage of the quick drop off of the Fed’s notes were rewarded. This market wants to head lower.
When someone writes the story better than I can, you see me post the article.
Interest Rates
What was confusing about today’s trade was the reaction to the “Fed Talk” by the 10-year (ZN 12-19), which rose in price, signaling just the opposite of what the Fed said. In other words, those that trade bonds think that interest rates are headed south.
I’ve always been a believer in following the traders versus what the “Fed Talk” suggests. It is usually better to take the opposite side of what the Fed says you should do, especially short term after they say it. Take advantage of the masses all reacting at the same time in the wrong direction and “go against the flow”. It works. Sell when “they” buy, and buy when “they” sell.
The Euro
The Euro (6E 12-19) remains in a tight trading range just waiting for something to give it the boost it needs. Buyers will step in below; the underlying currency cycles have changed; the Dollar is heading lower.
Natural Gas
It better get cold soon. Natural gas is stuck with a greater potential of testing the lows versus heading higher. There’s simply too much gas to go around. Not enough of it is being pumped, piped and sold. Going to be a long winter from what we’ve seen so far. Don’t get trapped. Just because it’s getting colder doesn’t mean prices are going higher.
Soybeans
Still on the sidelines here, but not for long. Until we have absolute knowledge of what acreage was planted, I’m happy staying on the sidelines, but I will get an itchy buying trading finger below 900.
By the middle of December, we’ll have it all figured out, I hope. Keep emailing me at david@amstradinggroup.com and let me know what you want me to highlight and teach. In the interim, thanks for reading what we post, and enjoy your trading.
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As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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