The Calm Before the Storm?

The VIX was trading in the $13s despite ‘hell week’ being on tap

Follow @MrTopStep and @BretKenwell on Twitter and please share if you find our work valuable.

Our View

The S&P has been up four weeks in a row as it heads into “Hell Week.”

Today’s a relatively quiet day, data wise. However, the CPI report and the first day of the Fed’s two-day meeting is on Tuesday. On Wednesday, we’ll get the PPI report and the Fed’s rate decision. Finally, “Fry-Day” features the June triple witching. Don’t forget that the quarter Opex chop can start a few days early.

While the rally may be tied to 8 to 12 stocks, it officially pushed the S&P out of the bear market last week, while the Nasdaq is now on its longest winning streak since 2019. The coming week will be a big test for the S&P and Nasdaq and whether these indices can hold.

The S&P 500 finished the week with a current year-to-date gain of 12%. The equal-weighted version of the S&P 500, which gives every company equal weighting rather than basing their weighting off of their market capitalization, ended the week with ~2% gain for 2023.

Our Lean

I’m going to keep this short and sweet, because you just saw why this week can be difficult. Volatility should pick up Tuesday, but today could be another low volume “thin to win” trade.

Our Lean: You can sell the early rallies and buy the pullbacks or buy the 10 to 30 point pullbacks.

As for levels, our 4375 level held as resistance on Friday with last week’s high coming in around 4370. That will be key on the upside and a push above this area could put the 4390s on tap.

On the downside, 4345-50 was resistance all week until Friday and is the Globex low now. If we trade there in the regular session, I at least expect a bounce.

MiM and Daily Recap

The ES traded up to 4305.50 on Globex and opened Friday’s regular session at 4305.25. After the open, the ES traded 4305 and basically rallied all the way up to 4325.50 at 10:34, traded back down to 4310.50 at 10:52, up-ticked to 4322.25 and then dropped down to 4298.50 at 11:34. After a little back-and-fill and a new low down to 4294 at 12:02, the ES traded back up to 4213.50 at 2:41 and sold off down to 4304.25 at 2:41.

After a push back above the VWAP at 4310.75 at 3:00, the ES pulled back to the 4302.50 level at 3:42. The ES traded 4306.50 as the 3:50 cash imbalance showed $160 million to buy and traded 4297.75 on the 4:00 cash close. After 4:00, the ES up-ticked a few points and settled at 4304.75 on the 5:00 futures close, up 6.5 points or 0.15% on the day. The NQ settled at 14,566.25, up 63 points or +0.53% and the RTY settled at 1,868.10, down 15.20 points or -0.81% and crude oil settled at 70.47, down 0.97% on the day.

In the end I want to explain something…

The Opening Print isn’t just about highs and lows. Unlike most newsletters, this one tries to put you in the price action, providing a real feel for the markets. Mr Top Step’s Sidd and TraderDave started including ‘option gamma’ in their trading toolbox a few years ago, but since then the dollar value of the options expiring started hitting $3 trillion.

Here is the definition: Gamma (Γ) is an options risk metric that describes the rate of change in an option’s delta per one-point move in the underlying asset’s price. Delta is how much an option’s premium (price) will change given a one-point move in the underlying asset’s price.

This my friends is changing how the markets function. 6 out of the last 9 Fridays have been higher (so have 9 of the last 12). No matter what tools you have, option gamma FRYdays needs to be part of it.

In terms of the ES’s overall tone, it closed lower but not by much. In terms of the ES’s overall trade, volume was on the high end because of the ESM/ESU roll (spreads), with 2.09 million contracts traded.

Technical Edge

Speaking of some stats, Fridays have been on a roll this year with the SPX finishing higher about 65% of the time. However, that’s roughly in-line with Thursday and both figures actually lag Monday, which has had a 68% win rate so far this year.

That’s interesting and not what I expected. Even more interesting?

Despite a ~⅔ win rate Thursday-Monday, the SPX actually sports a win rate of just 35% on Tuesday and Wednesday.

We’re in a tough spot now for individual stock trades where the R/R just isn’t as attractive. Let’s see how today shakes out and if better opportunities emerge this week.

Odd that the VIX was trading 13-and-change when we have such an eventful week on tap.

S&P 500 — ES (September Contracts)

SPX

As for today’s levels:

SPY

NQ

Tough 100 points chop zone of 14,775 to 14,875-ish. Weekly-up at ~14,866 could get a move higher going if breadth is strong.

QQQ

Last week we got an excellent dip-buy into the $348-49 zone and the 10-day ema. But let’s exercise some patience here.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM and AMZN.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders →

Relative weakness leaders →

Economic Calendar

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!