Beware of Octoberphobia
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Our View
The rotation/rebalance continued right into the end of September, but not without a few headline news algos running away with things. The first one was this: US Official: Israeli Troop Positioning Suggests That a Ground Incursion Into Lebanon Could Be Imminent. Number two was this tidbit from POWELL: FED DOESN’T FEEL LIKE IT’S IN A HURRY TO CUT QUICKLY. Or how about this one? The International Longshoremen’s Association, which represents some 47,000 port workers, has been unable to reach a deal, and it could have a $4 billion daily impact. These are just a few of the headlines, but they show how the markets are being bombarded.
Guess what? There are only 34 days until what could end up being one of the most contested presidential elections in history. I have no idea who’s going to win or how the markets will react, but all of this feels like a small funnel cloud that could turn into a Florida-sized hurricane. I know… I’m always Mr. Doom, but I don’t think so. I’m just putting out what I see, and it’s not my fault that 90% of the news is bad. I’ll try my best to write something positive for Wednesday, if I can find it.
Our Lean
I actually started a MrTopStep update saying that I thought there would be a reversal, but as I was doing it, the ES fell 15 points, so I didn’t send it.
IMPRO
Dboy: (9:53:42 AM) – This is going to be a long day.
Dboy: (9:54:05 AM) – Most of whatever will happen will be in the last 45 minutes.
Dboy: (9:54:42 AM) – I think there is a short side bias, but it’s thin.
Dboy: (11:13:31 AM) – Did they do most of the rebalance already?
Dboy: (11:13:42 AM) – Bob not trading.
Dboy: (11:13:56 AM) – Thin to win stuff going on here.
Dboy: (3:09:43 PM) – How can it sell off like this? Big slow walk (meaning the selling isn’t heavy enough to sell the markets off).
Our lean: Today is the first day of October and the first trading day of the new quarter. I know October is known for crashes, but not as much in recent years. The first trading day of October is mixed, with the Dow up 9 of the last 18 years and up 2.7% in 2022.
According to the Stock Trader’s Almanac, beware of “Octoberphobia” from past crashes: 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989, and the 2008 meltdown. Yet, October is also known as the bear killer, having turned the tide in 13 post-World War II bear markets in 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002, 2011, and 2022. October is no longer the worst month for stocks, becoming one of the best months for the Dow, S&P, and NASDAQ from 1993 to 2007, especially during presidential election years since 1950.
This brings me to the point: the $5 billion bought on yesterday’s 3:50 imbalance was part of the buying at the end of the quarter. I think there could be some buying in the first few days of the new quarter. We only saw $5 billion to buy, but someone bought billions from 2:30 right into the 4:00 cash close. Maybe I’m wrong, but for the last 2 to 3 weeks, we’ve seen this funky rally in the morning and sell-off in the afternoon. Looking at a longer time frame, it seems like the ES has been in a big back-and-fill and could be trying to move back up a bit. If the ES gaps lower, I am buying the first drop after the lower open. If the ES gaps higher, I want to sell the open or the first rally above, and then look to buy weakness, especially if volumes are low again. The ES and NQ may see some sell-offs in October, just not today.
MrTopStep Levels:
MiM and Daily Recap
The ES rallied up to 5802.75 on Globex, sold off down to 5774.25, and opened Monday’s regular session at 5784.00, down 0.11%. After the open, the ES traded at 5780.00, rallied up to 5791.00 at 9:38, and then dropped 12.5 points down to 5778.5. It then rallied 14.75 points to 5793.25, pulled back to 5787.00 at 11:12 a.m., and rallied again 14.75 points to 5793.25. After the bounce, the ES sold off 11.25 points down to 5783.25, rallied 15.5 points to 5798.75 at 12:12 p.m., and dropped 13.5 points to 5785.25. It rallied 8.25 points to a lower high at 5793.50 at 2:00. The next move was a 37.25-point drop to 5756.25 at 2:28, followed by a rally up to 5788.00 at 2:55. After the rally, the ES sold off to 5775.25, rallied up to 5804.25 at 3:48, 48 points off the low from 2:30. The ES then sold off down to 5801.00 at 3:49 and traded 5800.25 as the 3:50 cash imbalance showed $5 billion to buy. It traded up to 5810.75 on the 4:00 cash close and then up to 5820.25. After 4:00, the ES sold back off to 5805.50 and settled at 5806.25, up 20.5 points or +0.35%. The NQ settled at 20,233.25, up 40.25 points or +0.20%. After Powell spoke, the yield on the 10-year note settled at 3.798%, up from 3.751% on Friday. The two-year yield, more sensitive to the near-term outlook for short-term rates, rose to 3.648% from 3.562%, and gold futures settled at $2,659.40.
In the end, I put a few posts in my chat saying that the ES and NQ were slow-walking at the late lows, meaning they were ticking down but not really selling off. I also mentioned that the MIM was going to be $4 billion to buy. The rest of the story is that the ES rallied 64 points from the 5756.25 low to the 5820.25 4:00 cash close print. In terms of the ES and NQ’s overall tone, they were equally weak on the way down, but the final rotation was back into the ES. In terms of the ES overall trade, volume was steady all day with 1.354 million contracts traded.
On the NYSE, there were around 650 million shares traded just before the 4:00 cash close, and they printed 800 million shares on the close, for a total volume of 1.457 billion shares traded, including all ETFs.
Technical Edge
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NYSE Breadth: 50% Upside Volume
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Nasdaq Breadth: 54% Upside Volume
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Advance/Decline: 54% Advance
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VIX: ~18.88
Guest Posts: Daniel Salguero: Tradrr.com
Corn has been gradually trending upwards since the September 12 Crop Production report. Last week began with a higher low relative to the September 12 low, forming several slight higher highs, which were quickly sold into. This week started at the previous weekly value area high, with several rejections from that level until the Grain Stocks report was released, allowing for a clean breakout above last week’s range.
A move to fill Monday’s single prints and back within last week’s high should be closely monitored for either a reclaim of the range or a flip of the previous highs into support for a potential move higher. Monday’s lows, aligning with last week’s value area high, are the next important level. A reclaim of this level would suggest that the week’s initial attempt to auction higher was unsuccessful, signaling a return to balance within the prior range. Conversely, if the upward trend starting with this month’s Crop Production report is to persist, any move down into Monday’s lows should be quickly bought up, with higher highs expected by the end of the week.
ES
ES Daily
NQ
NQ Daily
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!
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