Geopolitical Tensions Increase. But Does it Matter?

Low-volume trade persists

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Our View

It’s getting harder and harder to overlook the geopolitical unraveling. Over a year ago, I said the first war the US will enter will be in the Middle East, and yesterday the Israeli military said it launched strikes against more than 1,300 locations that targeted Hezbollah’s military infrastructure. The Pentagon said it was sending additional forces to the Middle East: “In light of increased tension in the Middle East and out of an abundance of caution, we are sending a small number of additional US military personnel forward to augment our forces that are already in the region.”

Then there’s the China Sea, where a host of adversaries are just waiting to sink our ships and down our jets. I personally do not think the US is prepared to fight on three fronts. In the China Sea, the PRC is constantly ramming Filipino Coast Guard cutters, and in a message to Beijing, the leaders of the United States, Australia, India, and Japan said on Saturday they were “seriously concerned” over tensions in the South and East China Seas and announced a slew of new initiatives on maritime security, including the first-ever interoperability exercise among their coast guards.

I have to ask you something: if you woke up tomorrow and a war had broken out, would you be surprised? I wouldn’t. China has been telling us to stay out for the last 10 years, and it’s only getting worse.

What better time to start turning things up? The government is more focused on the election than it is on trying to cool things down, and then the United States, Australia, India, and Japan announce new sea patrols. I think warning lights are flashing all over, but you know what? The markets won’t care until they do!

Our Lean

As soon as I say it’s going to be slow, the markets will start moving, but yesterday’s day range was only 23.5 points; I can’t remember a smaller range.

We have some Fed speak and the S&P Case-Shiller home price index at 9:00 AM and Consumer Confidence at 10:00.

Our lean is for more of the same: Thin, low-volume trade. The ESZ24 made a high of 5797.50 on September 19 and a low of 5733.50 on September 20, and as I write this, the ES is trading at 5773.00. Bottom line? The ES is only 24 points off its recent high, while the weak seasonal stats are still front and center; thin to win and a low-volume grind can’t be ruled out.

MrTopStep Levels:

How to use MTS levels

MiM and Daily Recap

ES Recap

After a weak close on Friday, the ES sold off down to 5745.25, rallied up to 5781.75, and opened Monday’s regular session at 5774.00. After the open, the ES traded at 5777.50, sold off 14 points down to 5763.50 at 9:34, and then rallied 21 points up to 5784.50 at 10:24. It dropped 16.5 points down to 5768.00 at 11:08. After the drop, the ES rallied up to a lower high at 5782.50 at 11:56 and then sold off 21.5 points down to 5761.00 at 1:04. It rallied 14.25 points up to 5775.50 at 3:08, sold off a few points down to 5775.50 at 3:36, and traded at 5777.25 as the 3:50 imbalance showed ~$500 million to buy before trading 5776.25 on the 4:00 cash close.

After 4:00, the ES pulled back to 5774.00 at 4:11 and settled at 5774.75, up 16.50 points or +0.29%. The NQ settled at 20,063.25, up 43.25 points or +0.22%. The benchmark 10-year yield inched up to 3.740%. Gold futures rose 0.25% to $2,626.50 an ounce, a record high as tensions in the Middle East continue to rise.

In the end, Friday’s weak close led to a low volume, short-covering rally. In terms of the ES and NQ’s overall tone, they acted OK. In terms of the ES’s overall trade, volume was low: 161k ES traded and 849k traded on the day session for a total of 1.01 million contracts traded.

Technical Edge

NYSE Breadth: 61% Upside Volume
Nasdaq Breadth: 59% Upside Volume
Advance/Decline: 56% Advance
VIX: ~16

Guest Post — Daniel at Tradrr

Fed Speakers scheduled each day of the week. Considering the potential of the middle zone holding keeps bonds in a position to rotate around and balance in-between zones. Ideal to wait till fed speakers begin their talks and take advantage of the potentially added volume during those periods. Finishing the week with Jobless Claims and 5 speakers before the Stock Market bell rings.

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