Bulls Start September With a Punch in the Mouth
Everything went right for the bears yesterday
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Our View
I think the headline story in the Wall Street Journal about how bullish people are was a very bad omen. I am not one to make excuses, but I should have seen this coming.
The chipmakers led the selloff, with the Nasdaq closing down 3.3% and Nvidia losing $279 billion in market value, marking a record one-day fall for any US company. The major US averages had their worst day since August 5.
The selloff was not hard to figure out; it was sold on Globex, sold at the open, and sold all day. This probably isn’t what the Fed wants to see in front of this Friday’s monthly jobs report.
Our Lean
See the time on this chat room post by the PitBull? Well write it down:
IMPRO : PITBULL : (10:04:46 AM) : TREND CHANGE!!!!!!!!!!!!!!!!!!!!
The PitBull bought puts last week and seems to have a good handle on the stock side. When someone in the chat said the markets will bounce, he said he doesn’t think the low is in, this isn’t over and said to sell any rally.
Does that mean sell with reckless abandonment? I think it’s better to look at some retracements.
From the 5666.25 Globex high down to the day-session low at 5516.75, the 50% retracement sits at 5591.50. From the day-session high at 5630.00 to the 5616.75 low, the 50% retracement sits at 5673.50. I know these retracements may seem stretched out too far, but in most cases when you get a big drop, the futures rally. Am I surprised at the size of the fall? No, I expected to see more of this.
MrTopStep Levels:
MiM and Daily Recap
ES Recap
The ES traded up to 5669.75 and sold off down to 5624.50 at 9:28 and opened Tuesday’s regular session at 5625. After the open, the ES traded 5623.75, rallied to 5630.00 at 9:32, and then sold off 30 points down to 5614.00 with 168k contracts traded going into 10:00. It traded down to a new low of 5584.75 at 10:16, rallied up to 5579.00, and then sold off 24.50 points down to 5572.50 at 10:56. After the low, the ES rallied up to 5591.75 at 11:38, sold off down to 5576.50, rallied up to 5584.00, sold off again to 5576.50, and then rallied up to 5578.25 at 12:20, before selling off to a new low of 5569.00 at 12:50.
Weighing on the stock market were the beginning of a historically weak September and two weak economic reports from readings on manufacturing, PMI and ISM, which sent more warning signals about economic conditions. After the low of 5569.00, the ES bounced and then sold off to a new low of 5568.50. It rallied back up to 5580.75 and then sold off down to 5516.75 at 3:48. It started going bid and traded 5529.50 as the 3:50 cash imbalance showed $5 billion to buy, and traded at 5544.50 on the 4:00 cash close.
After 4:00, the ES sold off to 5532.75 at 4:30 and settled at 5538.50, down 119.25 points or 2.11%. The NQ settled at 18,989.75, down 616.50 points or 3.13%. The 10-year note yield slipped to 3.843%, crude futures tumbled below $74 a barrel after Goldman Sachs warned of flagging Chinese commodity demand, and Japan’s yen appreciated against the dollar while its bond yields climbed.
In the end, everything seems to come together for the sellers, a big early morning rally, selloff and weak economic news. In terms of the ES’s overall tone, all the indices were extremely weak. In terms of the ES’s overall trade, volume was high with 1.81 million contracts trading.
Technical Edge
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NYSE Breadth: 23% Upside Volume
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Nasdaq Breadth: 34% Upside Volume
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Advance/Decline: 27% Advance
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VIX: ~22.50
Guest Post — Polaris Trading Group
Topic: Daily Trade Plan
Author: David D Dube’ (a.k.a. PTGDavid)
Prior Session was Cycle Day 1: September is historically a weak month and if the first full trading session is a barometer, hang on for the ride. Markets are back on the defensive following a 10-day lateral consolidation period to close out the summer, as sellers struck hard and decisively throughout the day, particularly when our target / support zone (5630 – 5620) broke, closing near lows. Range expanded to 153 handles on 1.696M contracts exchanged.
…Transition from Cycle Day 1 to Cycle Day 2
This leads us into Cycle Day 2: Cycle Low is now in-place at 5516.75 and this will be our benchmark for the next rally. Given the momentum weakness in prior session, the best case the bulls can hope for is a relief rally and stabilization above the cycle low. Worse case is continuation of liquidation until sellers are “flushed-out” and the BTFD crowd returns. Typically trend days are followed by MATD rhythms for Cycle Day 2, so we’ll be anticipating this for today’s action, but remaining flexible to Mr. Market’s wishes.
Our discipline of maintaining positioning that is aligned with market forces continues to serve us well, so stay the course.
As such, scenarios to consider for today’s trading.
Bull Scenario: Price sustains a bid above 5525, initially targets 5555 – 5565 zone.
Bear Scenario: Price sustains an offer below 5525, initially targets 5515 – 5510 zone.
PVA High Edge = 5598 PVA Low Edge = 5532 Prior POC = 5583
ES Chart
Thanks for reading,
PTGDavid
Economic Calendar
For a more complete Economic Calendar see: https://mrtopstep.com/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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