The Opening Print Recap
The ES traded down to 4593.50 on Globex and opened Tuesday’s regular session at 4607.50. From there, it quickly traded straight up to 4619 at 10:05. The ES then pulled back down to 4612 and started moving higher again.
At 10:45, the ES traded 4619.50 before pushing to new all-time highs of 4627 at 11:47. Then some sell imbalances showed up and the ES sold off down to the VWAP at 4715.25, before rebounding and making two higher lows at 4625.75 and 4625.50, then slipping lower just after 1:30.
After the drop, the ES fell into a narrow back-and-fill trading range from 4617 to 4625 for the final 3.5 hours. The ES traded 4624.25 as the 3:50 cash imbalance showed $243 million to sell, traded 4623.75 on the 4:00 cash close, and settled at 4621.50 on the 5:00 futures close, up about 16 points or 0.35% on the day.
In the End
In January, the Dow Jones closed above 31,000. On Tuesday, it closed above 36,000 for the first time ever and marked its sixth 1,000-point milestone of the year — the most in a single year ever. The S&P, Nasdaq, and the Dow all ended on a record high for the third session in a row. The S&P hit its 61st all-time record high and the Nasdaq (NQ) has closed higher for 7 sessions in a row and in 13 of the last 15 days. All three benchmarks are up over 6.5% this quarter due to a strong October performance.
In terms of the ES’s overall tone on Tuesday, it was firm. In terms of the ES’s overall trade, volume was low at ~950K contracts traded.
Our View
Today is day two of the Fed’s two-day meeting. I know a lot of folks have been talking about the possibility of a rate hike, but I think the odds of that are “slim to none.” My feeling is that the Fed sticks to its timetable for rate hikes in early 2022, but that doesn’t mean there won’t be any reaction to the headlines and Powell’s comments today. Especially if (aka when) the Fed jawbones about inflation, asset prices, and tapering.
I know I sounded cautious yesterday, but I was concentrating on the Russell being up 2.4% on Monday. I thought the big investment firms and ETF’s would lighten up into the rally and I neglected to account for money going into stocks on the first few days of November.
That said, for the day we were looking for money to rotate into the Dow, which worked out well as it outperformed the Russell on Tuesday.
The Canadian Central Bank suggested last week they would start to increase rates as soon as April, while the Reserve Bank of Australia said yesterday it was moving up interest rates sooner than expected and the Bank of England suggested it may increase rates when it meets on Thursday.
Clearly, traders will be looking for more clarity from the Fed today, but I do not think its stance is going to change. If it does and it says it’s going to speed up its rate-hike schedule, the ES will pull back, but that will present another buying opportunity.
Our Lean
This is nothing new, but November and December have been two of the best months for the S&P 500 since 1936 and December has been particularly firm, rising nearly 80% of the time. Yesterday I exited part of my long ES position at 4622.50, up 46 points, and I put in a bid down at 4602.50. My gut says we see a little more two-way price action in the near term, but I still think the ES is going up.
Our Lean: I remain bullish but I can’t rule out a pullback today. MrTopStep has a trading rule that you are supposed to fade the first move after the Fed headlines but after such a strong run, we’re opting to be a bit more defensive.
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Technical Breakdown
With the Fed due up later today and a strong last couple of weeks of trading, we don’t want to do anything stupid to mess up the recent gains. The open is likely to have some opportunities, but let’s let the Fed do their talking and see what that gets us in terms of opportunities in the next few days.
Like the Nasdaq, the S&P 500 is up in 13 of the last 15 sessions. That’s one hell of a run for an index that, just a few weeks ago, traders were worried was going to sink back down to the September/October low and potentially test the 200-day moving average.
Instead, it was a healthy peak-to-trough correction of 5.9% and a move to all-time highs. I would love to see some pause and consolidation amid the Fed and Friday’s labor report. For now, let’s see how the S&P handles a dip to the 10-day moving average. A break of this short-term moving average could put a retest of the prior high in play, near 4,545 to 4,550. For now, we are in a buy-the-dip mindset unless the Fed really does something to break that thought process.
Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.
Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!
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