Will We Get 3 Down Days in a Row?
Watch for Fed Speak headlines today
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Our View
Yesterday, I changed the lean again — and you know how that goes!
It was supposed to be “sell the early rallies and buy the pullbacks” and I changed it to just “selling the rallies.” I don’t know why I did that other than I looked at the ES and it was down 40 points. I lost yesterday and I kept selling even though I posted the buy stops just above the VWAP.
The thing about this is, I base everything off a feel for the markets and the 3-day rule, which says you can get the ES to close down one day, maybe two days but three-day declines are hard to come by — especially in this environment.
I did a poll on Twitter titled “What do you fear more, being caught short or long?”
Most respondents were in-line with my vote — being caught short when the markets are going up.
Yes, the markets have been going down — they should — but yesterday’s trade was tough. The ES dropped after the open as the NQ fell, but late in the day you could see my short trades were profiting early, but late they were not giving up to the downside. It’s like it ran out of selling pressure and even rallied after the imbalance showed over $2 billion to sell.
Our Lean
Let’s face it, the tech selling we continue to see started on March 21, the week before the end of the first quarter and is still going strong.
Last week started with some sticky inflation data and this week’s strong economic data on Monday pushed yields higher, reducing the Fed’s odds of a rate cut in June. According to the CME’s Fed funds, the probability of the Fed lowering in June fell from 74% a month ago to less than 60% currently — which I still think is way too high.
Stocks came under pressure as the 10-year treasury yield jumped to its highest level since Nov. 28, the US dollar index neared a 6-month high, and oil prices surged to highs last seen five months ago after a 10% gain for the first quarter, the best start to a year since 2019.
I don’t know how long this pullback will last, but right now it looks like the Magnificent 7 is looking more like the Magnificent 4. Tesla dropped another 4.9% after disappointing Q1 deliveries and has lost more than a third of its value this year, while tech giants Nvidia, Alphabet and Microsoft all closed lower.
Our Lean
Today will be a test of the 3 day rule. The last time the S&P closed lower 3 days in a row was on Tuesday, March 26th. I asked Rich Miller, owner of @HandelStats what happens after the S&P falls 3 days in a row and here was his response:
Analyzing the E-mini S&P 500 futures (ES futures) performance since 2008 offers insightful trends, especially when focusing on patterns following two consecutive down days. Here’s a combined overview based on the data:
General Trend Since 2008 After 2 Consecutive Down Days:
– Out of 448 instances with two consecutive down days:
– The market rebounded on the following day 239 times (53.35%).
– The market declined further 205 times (45.76%).
– The market remained unchanged on 4 occasions (0.89%).
– Specific Trend in April After 2 Consecutive Down Days:
– In April, after two consecutive down days, observed 35 times:
– The market was up the following day 29 times, resulting in a striking recovery rate of 82.86%.
– There were 6 instances where the market continued to decline, marking a rate of 17.14%.
– Particular Pattern in April on Specific Weekdays:
– When the two consecutive down days occurred on a Monday and Tuesday in April, a scenario that unfolded 6 times:
– The market consistently rebounded on Wednesday every time, showcasing a 100% recovery rate for this specific sequence.
This nuanced analysis underscores a distinct pattern in April, where the propensity for the market to recover after two consecutive down days is markedly higher than the overall trend since 2008. Particularly, the perfect rebound rate following a Monday and Tuesday downturn in April emphasizes a potential seasonal or timing-based anomaly worth noting for trading strategies.
While these historical patterns provide a basis for strategizing, it’s essential to approach trading with caution. Markets are dynamic, influenced by a wide range of factors that can shift trends. Thus, while historical data can guide expectations, they should not be the sole factor in trading decisions. Risk management, diversification, and staying informed on current market conditions are crucial to navigating the complexities of financial markets effectively.
Our Lean: I always talk about selling the 20 to 30-point rips and off of yesterday’s low at 5239.50 up to 5263.25, that’s 23.75 points off the low. Today’s economic calendar includes ADP, PMI, ISM, 3 Fed officials, and Jerome Powell speaks.
I said on Monday there was an overload of economic reports and Fed speak. I think we see lower prices, but that doesn’t mean there won’t be some rips… sell any 20 to 30-point rips. As I said, today we test the 3-day rule. Let’s see how this plays out. If the ES trades under 5240 it could target 5200-5180 and above 5273 we could test the 5295 to 5305 level.
MrTopStep Levels:
MiM and Daily Recap
The ES sold off down to 5249.25 on Globex — again everything is moving: gold, crude, the dollar, Bitcoin — and the ES opened Tuesday’s regular session at 5252.75. After the open, the ES traded 5255.25, sold off down to 5235 at 9:52 and then rallied up to 5251.00 at 10:05 after some of the Fed speak headlines hit the tape.
After the rally, the ES sold off down to 5235.00 and then rallied up to 5249.25 at 11:38. After the high, the ES sold back off to 5239.50 at 12:18 and then rallied up to the VWAP at 5352.50 at 1:09, traded down to 5244.40 at 1:45 and rallied back up to 5257.25 at 3:09, pulled back to the 5250.00 level and then rallied back up to 5249.25 at 3:49. The ES traded 5249.50 as the NYSE 3:50 cash imbalance showed $2.3 billion to sell and traded 5260.50 on the 4:00 cash close. After 4:00, the ES traded up to 5262.50 at 4:33 and settled at 5262, down 33 points or -0.63%. The NQ settled at 18,344.50, down 152.75 points or -0.83% on the day.
In the end, the 30-yr and 10-yr yields rose as bonds and notes fell. Gold reached a new high at 2,297.75, crude rallied up to a new high at 85.44, the dollar index fell to 104.425 and Bitcoin tumbled to 66,000, down 5.63%. In terms of the ES’s overall tone, it was weak but they did pop late in the day. In terms of the ES’s overall trade, volume was higher but still low for the size of the move: 270k traded on Globex and 1.084 million traded on the day session for a total of 1.354 million contracts traded.
Technical Edge
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NYSE Breadth: 33% Upside Volume
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Nasdaq Breadth: 30% Upside Volume
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Advance/Decline: 24% Advance
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VIX: ~15.00
Guest Post
PTG / Taylor 3 Day Cycle
Author: David D Dube’
Website: https://polaristradinggroup.com/
Prior Session was Cycle Day 2: Price extended this cycle’s decline down to key FOMC (SoC) and NVPOC 5235 – 5240 zone, as responsive buyers were active, providing ample support. Cycle Day 2 consolidation entrenched the remainder of session, with a final bid up into closing rotation. Range was 61 handles on 1.339M contracts exchanged.
…Transition from Cycle Day 2 to Cycle Day 3
This leads us into Cycle Day 3: Price closed well below CD1 Low (5282.25), so job #1 for cycle bulls will be to reclaim this level during today’s session. This may appear to be a tall order, but historical odds (90%) favor trading equal to or above (=/>) CD1 Low on CD3.
Having closed near the high of the day and at a key high volume edge waypoint (5262), we’ll mark today’s Line in the Sand (LIS). Keep in-mind, the LIS (ES) is a zone with plus/minus (+-) 5 pts aside.
As always, our tactical trade plan remains unchanged…Stay in alignment with dominant intra-day forces. As such, scenarios to consider for today’s trading.
Bull Scenario: Price sustains a bid above 5262, initially targets 5275 – 5282 zone.
Bear Scenario: Price sustains an offer below 5262, initially targets 5250 – 5245 zone.
PVA High Edge = 5257 PVA Low Edge = 5236 Prior POC = 5244
*****The 3 Day Cycle has a 90% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history.
Thanks for viewing, PTGDavid
Economic Calendar
For a more complete Economic Calendar see: https://mrtopstep.com/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!
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