Bulls Try to Balance a Needed Rest With More Upside

The ES roared higher last week, up almost 6%

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Our View

The bad news is back to being good news. A weak jobs number and an uptick in the employment rate fueled a rally in the ES from 4331.25 at 8:30 a.m. ET to 4383.25 at 10:00.

It’s all so mechanical, it’s insane and with ~95% of the volume on the NYSE coming as some form of program trading, the markets basically go from looking horrible to skyrocketing. The S&P 500 rallied all five days last week, gaining 240 points or 5.85%.

It just doesn’t make sense, but that’s how the new-world trading order works.

As you know, we talk about the “guys with the better seats” — but who are they? They are the really big institutional firms paying billions to basically front-run the public’s order flow. In conjunction with paying the exchanges billions and also being market makers, they make prices for many of the products you trade. For that, you get “free commissions.” But is it really free? No, it’s not free — and nothing ever truly is. Anyone who thinks that zero commission is free doesn’t understand where the prices they trade off come from.

It is a very unlevel playing field and here is another disgusting example. It’s crazy the advantage government officials have over the public. If we were in a position to take advantage of something like that, we would surely go to jail.

Earnings out this week: CEG, GILD, UBER, OXY, DVN, EBAY, DIS, BIIB, WBD

Our Lean

The ES has enjoyed a low-to-high rally of 269.50 points, an impressive feat for a selloff that started on the last trading day of July 27th at 4634.50 and made a low on Friday, October 27th at 4122.25.

That is a ~512 points drop in 46 trading sessions, but more than half of those points being regained in five days. That’s a gain of 54 points per day, which is very close to the 10-day average range at 49.45 points. They say the S&P goes down faster than it does up, I don’t think so.

In 2020, the ES made a low on the last Friday in October, just like it did this year and it proceeded to rally 300 points from Friday to Friday and on the next Monday, it rallied another 150 points.

Our Lean: Over the last few days, the lean has been primarily to sell the early rallies and buy the pullbacks but obviously, the early rips have not been easy to short. Our lean is that the ES is overbought — and like we said when the ES was selling off, “the lower the ES goes the larger the bounce” — well the higher it goes, the larger the pullback.

I don’t think the ES is going to rally 150 points and I can’t say it’s wrong to sell the early rallies, but I’m looking to buy the 30 to 50-point pullbacks ideally. 4300 is a key area and a great spot to buy the dip.

For those of you who like HandelStats levels, here they are:

Upside: Trade and hourly close above 4384 targets Friday’s highs 4391.75, then 4396. Hourly close above there targets 4403.38, then 1 sd at 4407.99. Hourly close above there targets 4427, then 4431.26, then 2 sd at 4436.49.
Downside: Trade below 4384 targets 4:15 settlement at 4379.50, then 4377.25. HOURLY close below there targets 4355.25, then -1 sd at 4351. Hourly close below there targets 4332, then 4322.51.

MiM and Daily Recap

ES recap 15-min

The ES traded 4332.00 at 8:30 as the October non-farm payrolls report dropped to 150,000 — missing expectations — and traded 4359.50 on Friday’s regular session open. After the open, the ES traded 4358.25, rallied up to 4383.25, then dropped down to 4366.75 at 10:11 and sold off down to 4361.50 at 10:28. After a small bump up, the ES traded down to the VWAP at 4360.25 at 10:55. After the pullback, the ES rallied up to a 4387.75 double top and then sold off down to the 4376.75 at 1:26, before slowly rallying up to the 4391.75 at 3:08.

From there, the ES dropped down to 4384.00 at 3:26 and then fell to 4374.50 at 3:36. The ES traded 4378.50 as the MIM showed a minor $37 million to buy and traded 4375 on the 4:00 cash close. After 4:00, the ES traded up to 4380.00 and settled at 4378.50, up 42.75 points or +0.99%.

In the end, the MTS Trading Rules 101 did not work on the jobs gap up. As I said in the lean, I prefer a gap down open, but that I would still sell the gap-up. However, the ES went straight up and I actually had a stop at 4383.25, which ended up the early high of the day. In terms of the ES’s overall tone, it was firm. In terms of the ES’s overall trade, volume was lower: 356k traded on Globex and 1.356 million traded on the day session for a total of 1.698 million contracts traded.

Technical Edge

NYSE Breadth: 83% Upside Volume (!)
Nasdaq Breadth: 79% Upside Volume
Advance/Decline: 83% Advance (!)
- Back-to-back 80/80 days for A/D and NYSE Breadth
VIX: ~15.25

ES

Levels from HandelStats.com

ES Daily

Upside: Trade and hourly close above 4384 targets Friday’s highs 4391.75, then 4396. Hourly close above there targets 4403.38, then 1 sd at 4407.99. Hourly close above there targets 4427, then 4431.26, then 2 sd at 4436.49.
Downside: Trade below 4384 targets 4:15 settlement at 4379.50, then 4377.25. HOURLY close below there targets 4355.25, then -1 sd at 4351. Hourly close below there targets 4332, then 4322.51.

NQ

NQ Daily

Upside: Trade and hourly close above 15206 targets the overnight highs at 15225.25, then 15247.50, then 15274.50, then 15287.27, then 1 sd at 15328.77. Hourly close above there targets 15376.62, then 15435.50, then 2 sd at 15468.53.
Downside: Trade and hourly close below 15179.25 targets 15071.75, then -1 sd at 15049.23. Hourly close below there targets 14957.25, then -2 sd at 14909.47.