Last Day of Q3 is Underway

The rotation was clear on Friday.

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Our View

The market’s focus today is the last trading day of Q3, the start of Q4 on Tuesday, and 11 Fed speakers this week.

Fed Governor Michelle Bowman speaks at 8:55 a.m. and Federal Reserve Chair Powell speaks at 1:55 p.m. There are also 12 economic reports ranging from the PMI number to Friday’s September jobs report, but that’s not the only concern.

I’m not sure why this isn’t on more people’s radar, but a port strike on the U.S. East Coast and Gulf of Mexico will go ahead starting on Tuesday, the International Longshoremen’s Association union said on Sunday, signaling action that could cause delays and snarl supply chains. This would be the first coast-wide ILA strike since 1977, affecting ports that handle about half the nation’s ocean shipping.

The first thing I can think of where shortages could start popping up is gas, and President Biden has already said he doesn’t intend to intervene to prevent the walkout if a deal can’t be struck by the deadline on Tuesday. Here is a link to the story from Reuters.

Our Lean

All I have to say is spooky times. Israel has stepped up its attacks on Lebanon and the Houthis, China is firing off rockets, and Putin is warning of Armageddon. It’s the last trading day of September and the S&P is up 2.28% for the month, while the Nasdaq is up 5.95% on the month.

This has been an aggressive rebalance that I expect to see more of today. In most cases when the ES closes weak, it rallies on Globex. If that’s not the case and the ES opens down, we could see a bounce, but I still think you should sell the rips. No matter how you see it, it’s been a big month for the bulls; now it’s time for ‘spooky’ October.

MrTopStep Levels:

How to use MTS levels

MiM and Daily Recap

ES recap

The ES traded up to 5812.00 on Globex and held at the 5810 level one minute before the Fed’s key inflation gauge — the PCE — was released at 8:30 a.m. on Friday morning and came in lower than expected at 2.2%. It then rallied to 5817.00 by 8:50 a.m. and opened Friday’s somewhat irregular session at 5811.50. After the open, the ES climbed to 5814.00 at 9:32, then sold off 8.5 points down to 5805.50 by 9:51. It subsequently rallied 10.5 points up to 5816.00 at 10:05, dropped 9.5 points to a low of 5806.50, and then rallied 15 points to 5821.50 by 10:32.

After that, it sold off 25 points down to 5796.50, rallied up to 5804.75 at 1:08, dropped to 5793.00, and rallied 11.5 points to 5804.50 at 2:04. Following this uptick, the ES fell 22.5 points to 5782.25 at 2:32, then rallied 20.5 points to 5802.25 at 3:00. It later fell ~10 points to 5792.75 at 3:46 and traded at 5792.00 as the 3:50 cash imbalance showed $600 million to sell, then traded 5800.50 at the 4:00 cash close. After 4:00, the ES made a small uptick before selling off down to 5785.25 and settling at 5785.75, down 18.75 points or -0.32%. The NQ settled at 20,193.00, down 153.25 points or -0.75%. The YM (Dow Future) settled at 42,624.00, up 69 points or +1.6%, and the RTY settled at 2,243.00, up 12.70 points or +0.57% on the day.

In the end, the end of the quarter rebalance was not hard to tell, as the ES and NQ were sold while the YM and RTY were bought. In terms of the ES’s overall tone, they acted weak. In terms of the ES’s overall trade, volume was steady at 1.267 million contracts traded.