The Big Bounce

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Our View

It’s almost hard to believe that the ES could fall 141.75 points from its Friday high to low and then rally 99 points yesterday. I really believe the takeaway is that when you have such a large decline, the algos, in their infinite wisdom, know when the ES and NQ are oversold and then run hundreds of buy programs all day. I’ll admit, there have been times when the ES bounces off a weak close and reverses, but there are also a lot of times the lows lead to a low, so you can’t discount the importance.

And you know what else you can’t discount? The new algo that runs the ES up just before and after the close, like yesterday. It looked like the ES was going to rally late, and it did, but there was a drop down to 5464.00 at 4:00. After 4:00, the ES rallied back up to 5490.25, just 1.75 points off the high of the day. Clearly, someone has pushed a few new bots into the post-4:00 trade.

Our Lean

I was right about the 50 to 60-point rally, but I didn’t know the ES would rally 99 points. This brings to mind one simple question: did the ES make a low? I think the answer is that it could have, but it could also be just another big September dead cat bounce! For my part, I still think the ES is going to rally, but I also understand the weak historical seasonal negative stats associated with September and October.

Our lean: I want to buy 30 to 50-point pullbacks. There are a lot of ES buy stops above 5496, all the way up to 5518. That doesn’t preclude trading a gap, but I want to get a look at overnight inventory first.

MrTopStep Levels:

MiM and Daily Recap

After a deathly weak close on Fryday, the ES did what it does best—it rallied. The ES traded up to 5432.00, up 1.06%, and opened Monday’s regular session at 5462. After the open, the ES traded up to 5462.25, sold off down to 5455.95, rallied up to 5468.25 at 9:40 a.m., sold back off to 5459.25, and then rallied up to 5479.75 at 10:11. After the high, the ES sold off 37.25 points down to 5442.50 at 11:18. After the low, the ES rallied up to 5493.00 at 1:11 p.m., then dropped 28.25 points down to 5464.75, rallied up to 5472.25 at 2:30, sold off down to 5457.25 at 2:41, and then popped up to 5477.25 at 3:47. The ES traded at 5472.50 as the 3:50 cash imbalance showed $500 million to sell, then flipped and traded 5480.25 on the 4:00 cash close. After 4:00, the ES traded up to 5490.25 at 4:40 and settled at 5487.50, up 83.75 points or +1.55%. The NQ settled at 18,722.75, up 339.36 points or +1.85%.

The 10-year note yield slipped to 3.698%, its lowest 3 p.m. yield since June 2023, down from 3.710% on Friday.

Global benchmark Brent crude rose 1.1% to $71.84/barrel, and gold futures settled 0.3% higher at $2,532.70.

In the end, the way the algos work, you just can’t get short on the close when the ES falls sharply—they always bounce. In terms of the ES’s overall tone, it acted bullish, but remember, most of the buying was short covering. In terms of the ES’s overall trade, volume was lower, with 1.54 million contracts traded.

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Technical Edge

NYSE Breadth: 70% Upside Volume
Nasdaq Breadth: 67% Upside Volume
Advance/Decline: 621% Advance
VIX: ~19.50
Fair Value: 8.19

Guest Post – Daniel Salguero / traddr.com

ZB – US Treasuries Notes

A fair few sets of inflationary events are scheduled for the latter end of the week, potentially overshadowed by the debate later today.
We started the month spiking higher from August lows. While we left a bit of a taper, it wasn’t strong enough to suggest that the upside has lost momentum.
Several prior weeks left a zone of low volume, with slight confirmation of it from the day before the attempt at higher prices.
An attempt at a high failure at zone 1, crossing back through zone 2, leaves ZB to play out as a large balance, targeting back to zone 3 as the point of control that encompasses several value area highs and lows.

In The Rooms

PTG Trading Room Summary for Monday:

On Monday, PTGDavid and the PTG trading room focused on several key levels and trades throughout the session. The day began with a focus on potential short setups in crude oil (CL), where PTGDavid successfully hit two short targets (ORT SHORT TGT 1 and 2), capitalizing on early weakness in the market. As the session progressed, the S&P 500 (ES) 5472 level became a critical reference point, with PTGDavid identifying this level as a key for potential upward squeezes, which materialized later in the morning, fulfilling a cycle target.

In the middle of the day, PTGDavid highlighted the fulfillment of the 3-Day Cycle Target at 5481, cautioning against further long trades after the range was achieved. He also emphasized a bear shift after the cycle target rejection, recommending a lean toward short trades. In the afternoon, PTGDavid noted a buy response at the value area low (VAL) and successfully called for a long-side play off dips, which led to a profitable squeeze higher. The day wrapped up with key resistance levels being hit, and PTGDavid advising to “go with the flow, jellyfish style,” as volatility increased in the final hour.

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