“Trade or Fade”

Stocks jump on Retail Sales figure

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Our View

One day at my S&P desk on the CME floor, the PitBull called me and was out of his mind. 

Screaming at me, “why don’t you pick up!? I don’t want to talk to anyone but you!” — lol it’s still that way today — and I remember telling him I was short and losing money and didn’t want to talk…you know what he said before he hung up? 

“Trade or fade motherfucker!” 

In other words, get over it and move on. I had a long conversation with him about how now the big banks, mutual funds, and large investment firms get the news before the numbers come out and he said I was unequivocally correct. I know it may seem crazy, but this is the second month in a row the ES rallied big going into the CPI number and rallied big after. 

It’s like the PitBull said, “if you don’t think there are information leaks, look at Nancy Pelosi’s stock account value, do you think she knows more than me? No, she gets the information. It’s the way it goes and I have learned that it is better to be on the right side of it than not.” 

Like Tuesday’s big PPI rip, it never looked back. These programs have been rotating hundreds of billions of dollars. If you find yourself on the wrong side of that, it is best to admit you are wrong, get out and start over like I did yesterday. 

MiM and Daily Recap

The ES traded within an 11.75-point range from 5463.25 down to 5457.25. At 8:24 a.m., some ES buying started showing up at 5462.00, and then it blasted higher after the CPI number was released, showing the annual inflation rate slowing to 2.9% in July, the lowest since 2021. The ES then dropped to 5448.50 at 8:32, rallied up to 5469.00, and subsequently sold off to 5363.00. It traded 5466.25 at Wednesday’s regular session open. 

After the open, the ES rallied up to 5470.25, made a few lower highs, and sold off to 5449.50. It then rallied to 5455.75 at 10:06, dropped to a new low of 5446.00 at 10:13, and then moved back up to 5457.75. The ES dropped 19 points to the low of the day at 5438.75 at 10:36 and rallied 49 points up to 5487.75 at 12:08.

After the high, the ES again made a few lower highs and sold off 32 points to 5455.75 at 12:48. It then rallied to 5474.50 and dropped 9.5 points to 5464.00 at 2:04, before rallying up to 5481.50 at 3:00. After the high, the ES sold off to 5466.00 at 3:20, rallied to 5471.25 at 3:30, and then sold off to 5465.50 at 3:37. That’s when I put this in the chat: 

After the downturn, the ES traded back up to the 5470s and traded 5475 as the 3:50 cash imbalance showed $2 billion to buy. It traded back up to 5485.25 at 3:57 and closed at 5475.75 on the 4:00 cash close. After 4:00, the ES traded up to 5485.25 and settled at 5481.50, up 26 points or +0.48%. The NQ settled at 19,147, up 42.75 points or +0.22% on the day.

In the end, the trend is your friend until the bombs start falling. In terms of the ES’s overall tone, it was firm on Globex, it was firm after the 9:30 open and it was firm on the close. In terms of the ES’s overall trade, volume was low at 1.24 million contracts traded, volume is always lower on the way back up.  

Technical Edge

Guest Post  — Dan at GTC Traders

Trades in a 50/50 Symmetrical Risk Environment

So I train in combat sports.

And in a sport like Brazilian Jiu Jitsu and other combat sports, we have the concept of a “50/50”.

In a “50/50” both competitors have an equal and symmetrical control over each other, making it a  neutral or stalemated position. The same equilibrium that can be found in combat sports, reflects a situation where the risks and potential rewards are evenly distributed between the two sides. Just as in a combat scenario where neither fighter can gain a decisive edge, the market exhibits similar indecision, with neither bullish nor bearish forces able to dominate. 

Investors are grappling with symmetric uncertainty, as economic indicators and geopolitical developments continue to create an environment where gains and losses are equally probable. 

Without getting overly pedantic and specific regarding market drift and periodicities; suffice to say that we see risk at the moment in a  symmetrical ’50/50′ to both the upside and downside.

Everyone has their ‘thoughts’ as to the next move.  Personally, we prefer to trade non-predictively.  In other words, we never try to predict where the market is going to go.  Over various periodicities that traders engage in, quantitative studies have shown that it’s pretty much a 50/50 coin toss.  That is not to say that trading is a 50/50 proposition.  It’s not. Many newer traders confuse this concept.  Trading with higher accuracy rates and edge is certainly possible.  While trading hasn’t been the best for us the last few months, we still have a hit rate of 59.44% accurate at the current time.

What we mean, is that trying to predict the move in the future needs delineated from market edge; and therefore we do not try to predict future movements.

Instead, what we look for are trades that we have an edge, in any given environment.

And in this environment, we believe that the present directional risk is symmetrical on both the upside and the downside.

So how to trade this environment?

We believe that what we refer to as ‘bias bets’ are but one way to place a few trades in this environment.

One of a few trades we placed yesterday, was to sell the September 6 QQQ 420 Put and buying the Sep 6 QQQ 410 put for a net premium of 0.34; and doing 1 spread per $50,000.00 in the total portfolio.

Obviously, that’s not going to be a large return in and of itself.  Which is why it is just one of a few short-term trades we have on at the moment; including a muted-risk “relationship trade” (a discussion for another time).  Folks who are familiar with selling credit spreads, or ‘verticals’ are quite familiar with the risk profile and the approach.

For those not familiar with examining the square root of τ (tau, or time) to implied volatility at the current time, it’s likely that the QQQ can sink as far as $444.50.  And knowing that expected range, gives us a built in defense mechanism.  If we sink below $444.50 in the next few days, we could buy the spread back, and roll it out in time.  If we rally higher?  Great.

We are NOT saying that the above trade is the one single trade to put on in this environment.  As stated previously, we have other trades, including what we refer to as ‘muted risk relationship trades’.

What we ARE saying is that when we examine the overall market environment we feel that the risk is symmetrical.  It’s a ’50/50 dogfight’.  

So we are personally looking for these KINDS of trades.  

Trades that allow for a greater degree of leeway, until the bulls or the bears firmly take control on larger and longer periodicities.

Stay safe … and trade well …

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!