A Year For The Books

Index Futures Net Changes and Settlements:

Foreign Markets, Fair Value and Volume:

• In Asia 8 out of 11 markets closed higher: Shanghai Comp +0.44%, Hang Seng +1.34%, Nikkei -0.31%
• In Europe 12 out of 13 markets are trading higher: CAC +1.02%, DAX UNCH, FTSE -0.09%
• Fair Value: S&P +0.74, NASDAQ +14.82, Dow -22.79
• Total Volume: 1.99mil ESH & 450 SPH traded in the pit

Today’s Economic Calendar:

Today’s economic calendar includes the Dallas Fed Mfg Survey at 10:30 AM ET.

S&P 500 Futures: 2018 Year End Rebalance ‘Walk Away’

Chart courtesy of @Chicagostock:
$ES_F Holding above 3D pivot range, keeping pressure up and forcing buyers to chase. Next major level 2550-2580 to test FOMC high of 2592.

After trading sideways during the overnight session, the S&P 500 futures opened Friday’s regular trading hours at 2504.25. The first move after the bell was a rally up to an early high of day at 2509.75, before turing lower and selling off down to the morning low of 2472.75 at 9:45. From there, the ES bounced going into the midday, double topping at 2501.50, and then drifted lower to close out the morning.

The afternoon saw a push lower, down to 2481.75, and then a sudden reversal higher, as strong buy programs came in for the close thrusting the ES up to 2523.00. The reversal eventually failed in the final hour with a selloff down to 2476.75. The benchmark futures contract went on to print 2486.25 on the 3:00 cash close, and setted the day at 2487.00, down -8.00 handles, or -0.32%.

[VIDEO] MEJT Stock Market Forecast

#ES 2018 End Of The Year Rebalance And Record Low Liquidity

Our View: First, I want to thank and wish all of you for being part of MTS. I really appreciate all the compliments I get from people about the Opening Print. I have been writing it so long that I can’t remember how long I have been doing it! Geez, that’s not good! I know I was writing it from Dubai every night for almost two weeks on one of the trips to the UAE. when we were doing Sheikh Mohammed futures and options business. I am pretty sure I started writing like 3 or 4 years before that, so it’s been at least 26 or 27 years. Eeeee…

I think we all know the retail futures trading industry has been shrinking for years, and over the last two months, with the ES dropping 2% to 3% a day and rallying over 5% in one day, it only adds to the pain. Remember, these are not, and I mean ‘NOT’, our father markets or charts!

Like I said above, it gets hard to concentrate on trading when there is so much going on at MTS. While I do think I have made some good calls, I also made the call for the year end rally a little too early. I knew that the odds of a Santa Claus rally increase starting the day after Christmas, but I went out two Fridays ago on Twitter and started talking about a ‘big pop’ coming, and I did it after a big 50 handle rally, and then watched the ES sell off 75 handles.

I can express my frustration with a call like that. I knew how the end of the year stats work, and I also knew that with a 50+ handle rally, or even 100+ handle rally, you’re supposed to lean into it. I also have to admit that on two days over the last 3 weeks I lost 1/3rd of my years profits. The PitBull says it to me all the time that we are outgunned, and I have to agree.

There were over 500 clearing firms between the CBOT and the CME when I started on the floor, today there are 23, and only 3 or 4 that will open a retail futures accounts. In most cases the IB’s open the accounts because the clearing firm prefers to have a buffer in place. A recent report from the NYSE showed that over 83% of the volume is algorithmic or HFT. Retail traders have to, in essence, take on some of the smartest quants and programmers in the world, places like Renaissance Technologies LLC or Citadel. Im sorry to say this my friends but they don’t lose…

Renaissance’s Medallion fund, for example, has averaged annual gains of more than 35% since 1990. So, the moral of my story is, while I may call it well trading, it is a whole different game now. You have to have extreme patience, normal moves could have the Dow down 600 to 800 points, or the ES could have a 70 to 80 handle move from high to low. While this maybe the new norm, it really isn’t normal at all. In fact, regardless of what others may say, we have never seen an extended period of such extreme volatility. I know, some will say the credit crisis, or 1987, but we never saw continuous 3% daily drops and over 5% rallies in one day.

I usually add my ‘In the end’ to the bottom of the top part of the Opening Print, but today truly is an end, the last trading day, and last day of 2018. If someone were to ask me to do a very brief overview, the first thing would be that it was Trump’s stock market rally and failure. While I am 100% sure the China trade wars definitely have had a very negative effect on the world’s stock markets, it’s not just China. I would add that while I like Trump, I also am like many of his supporters; I am happy he is looking out for America, but I am not happy with turning global friends and trading partners in to enemies.

This hard nosed push approach where he doesn’t listen to any of his staff members recommendations, losing so many key people, and just blasting off on his Twitter has gone from amusing to ludacris. Owning a media company I know how hard it is to keep up with running a company and trading, and the president has a lot more on his hands than I do, but my belief Trump has so many issues he causes ‘fruckises’, or disruptions, to push the media away from all his investigations only adds to a longer list of problems. Many Trump supports may disagree, but to me it feels like he’s on the run. Shutting down the government to procure the money to build the wall isn’t hurting our congressmen or senators, its hurting poor families and low-paid workers, and the president’s approval rating.

Our view; today is a full trading day, and Tuesday the ES is closed all day, then reopens Tuesday night. The first thing is, most people are taking time off for the holidays. The second thing is, it’s the last trading day of the year and the year end rebalance. According to Wells Fargo, investors and traders are looking for a desperately needed respite from market gyrations may have to deal with yet one more “seismic bout” of volatility before Dec 31 finally pops up on their calendar dials.

According to Wells, on the close today the pension funds will rebalance / adjust positions between stock and bonds. Last week it was advertised that the ‘rebalance’ was over $120 billion, but after last weeks late blast up, the number was cut back substantially. For every 1% higher, the pension funds bought $1 billion in stock, thus leaving around $50 to $60 billion to buy. My feeling is that while the ES may really off the buying, most of it will be paired off. I think I am like a lot of folks, I think the ES may rally, I just don’t think it will hold. It won’t just go up without a few good selloffs. As for 2019… I am going to take this one day at a time.

Lastly, and this is something I have talked about a lot, the liquidity in the futures has dropped to a record low in the #ES, #NQ and #YM futures. The Barclays chart above shows how the ES futures ‘bid / ask’ contract size has dropped to a record low, meaning there could be a pick up in volatility late when the rebalance starts.

Market Vitals Technical Analysis for Monday 12-31-2018

[gview file=”https://mrtopstep.com/wp-content/uploads/2018/12/Market-Vitals-18.12.31.pdf”]

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As always, please use protective buy and sell stops when trading futures and options.

_{Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.}