I don’t know if this is something new or it’s all part of the Fed’s zero borrowing programs. The MrTopStep Trading Rule (https://mrtopstep.com/mts-trading-rules/) I see at work is, “the S&P has to go down before it goes back up.” That’s exactly what it did yesterday.
After some headlines about the ECB offering Greece a 6-month reprieve on its debt payments, the S&P futures (ESH15:CME) soared all the way up to 2059.00 in Globex, but the rally did not hold and around 10:00 CT it was trading down at the 2043 level. With the current volatility, approximately 30 minutes later it was trading 2052.50. I keep saying things like “that’s how it works” and it really does. Once the algos figured out that everyone had gotten long into the rally and put in sell stops, the programs started pushing for the sell stops. Then, at the 2044 lows, once the sellers got short at low prices and put in their buy stops, the algos knew that and acted quickly and with volume. At 11:15 CT the ESH15 was trading 2056.00. Can you see how this works? The computers fade the order flow. And they’re faster at it than the average human.
Positive Feel
Yesterday, the S&P 500 futures rallied off of hope that Greece would strike a deal with its international lenders. Coca-Cola was a top performer after it reported better than expected earnings and Apple closed with a market cap of over $700 billion. All contributed to a very good day for the US major indices. At the end of the day the S&P futures closed up 19.75 points or +1.1% to its highest close in 2015. The Dow Jones futures (YMH15:CBT) closed up 112 points or +0.8% and the Nasdaq futures (NQH15:CME) settled at 4276, up 61.70 points for a gain of 1.3%.
S&P Back & Fill
One of the more specific patterns in the S&P futures over the last 6 years has been something we call “back and fill.” So what is back and fill? It’s clearly something all traders should learn and it’s fairly easy to explain.
After the S&P sells off, it reaches a price or an area where it starts to hold and trade sideways, which is what we consider “back and filling” price action.This is generally associated with the S&P making a low, bouncing and then trading back down and holding that low, or what’s called a retest. These patterns are not that hard to see. Once the low is established, keep an eye on how low the volume gets on the low ticks. Over the years this has been a hallmark of how MrTopStep reads the overall price action of the S&P on both big and small declines. Some may say this is trading to catch a falling knife, but in reality retest and back and fill price action is how lows are made.
One last thing. Tony LaPorta, a good friend and fellow trader, pointed something out to me the other day that I want to share with you. Tony said what makes us different is we do not say things like “If the S&P breaks this price or that price it should trade to this level while we call directions and say ‘sell this rally’ or ‘buy this dip.’” I agree Tony, in today’s world people want to know which direction and when not the old “if’s” the ES does this it should do that. Thanks for your thoughts.
In Asia 7 out of 11 markets closed higher and in Europe this morning 10 of 12 markets are trading lower. Today’s economic and earnings calendar: MBA purchase applications, Richard Fisher speaks, EIA petroleum status report, 10-year note auction, Treasury budget. The earnings season is starting to wind down; we have Cisco Systems, AMAT, NTAP and NVDA, the Greek government is supposed to provide the specifics of its economic plan and Ukraine, France, Germany and Russia are set to meet in Minsk.
Our View
Tell me I am wrong, but almost every day the S&P sees some type of early selloff and then rallies. I think it has something to do with all the cash stocks the mutual funds have been buying.
The pattern resulting from this behavior is an upward channel that today will put support between 2047 and 2053 and resistance all the way up at 2085 (remember that number?). While further shocks from the news could push us down to 2029, you can count on the market to be volatile, but also not random. Keep an eye on the charts, and as we said yesterday, watch for an early selloff and then buy the weakness. Stop-loss orders are your protection against the algos.
“The S&P and Turnaround Tuesday”
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 of 11 markets closed lower closed higher: Shanghai Comp. +0.51%, Hang Seng -0.87%, Nikkei CLOSED
- Earlier in Europe 9 of 12 markets were trading lower: DAX -0.23%, FTSE -0.47%, MICEX +1.74%, Athens GD.AT -4.19%
- Fair value: S&P -4.24 , Nasdaq -3.48 , Dow -39.35
- Total volume: LOW 1.37mil ESH and 6.2k SPH traded
- Economic schedule: MBA purchase applications, Richard Fisher speaks, EIA petroleum status report, 10-year note auction, Treasury budget; earnings from Cisco Systems, AMAT, NTAP and NVDA; the Greek government is to provide the specifics of its economic plan, and Ukraine, France, Germany and Russia are set to meet in Minsk
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