Can We Get an Options Squeeze for “Fry-Day?”

We’re back in the range until further notice.

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Our View

Trading is funny. I chopped myself up Wednesday, but I made a comeback yesterday for two reasons: I followed my game plan and executed it.

I used to be someone that liked buying the quick selloffs and that worked well until Covid significantly expanded the ranges. On one of those big up or down days, it’s not impossible to make 40 to 70 points on a trade. Now though, most of the movement early in the week is just a function of Friday’s option positioning — AKA how much there is to buy and how much to sell.

I don’t know how long the ES is going to be stuck in a narrow trading range, but I do know one thing: You can’t sell down into the 4120 level and you can’t buy into the rips above 4170. I also don’t think things will change much when our paid officials agree to a budget deal.

We are stuck in a trading range folks, so we best get used to it.

Our Lean

I think the ES goes higher, but I also think there will be rips and dips. Keep in mind that there are three parts to the trading day: What happens on Globex, what happens at the 9:30 ET open and what happens in the last hour of the day.

Thinner volumes due to the holiday plus the last Friday option squeeze could help push the markets higher late in the day. If the ES were to gap lower, my lean would be to buy the open and try to hold.

Lastly, I want to thank all of the paid customers of MrTopStep’s Opening Print. As you know, I am not advising, I am just trying to give you a feel of the type of trade we see everyday. The PitBull said yesterday that he can’t believe I can still write it, but as Bret has learned, it’s ingrained in me. One of the readers that has been getting the Opening Print for over 25 years said that he still looks forward to seeing it in his email every morning and also said that it took a few years to get the ‘feel thing’ but now understands it much better.

Like I have always said, I am not here to tell you to buy or sell and I am not here to trade your money, I am here to provide the flavor for trading the S&P 500 futures and its ups and downs.

MiM and Daily Recap

The ES traded up to 4166.75 and opened Thursday’s regular session at 4161. After the open, the ES sold off to 4139.25 at 9:40, traded back up to 4151.50 and then retested the 4139.25 low. From there, it rallied back up to 4151.75 at 10:01 and then sold off down to a double bottom low at 4137.50 at 10:25, rallied all the way up to 4160 at 11:16, traded back down to 4139.50 at 11:42 and then rallied back up to 4159.25 at 12:25. After the high, the ES back-and-filled around the VWAP in a 4156.75 to 4147.75 range until 12:31 when the future rallied 14 points all the way up to 4167.50 at 2:02 and then traded back down to 4152 level at 2:49.

The early imbalance showed $1 billion to sell and the ES rallied up to 4166 at 3:14. It traded 4165 as the 3:50 cash imbalance showed $2.58 billion to sell, traded down to 4161.50 and traded 4160 on the 4:00 cash close. After 4:00, the ES traded up to 4161.50 and settled at 4158.75 on the 5:00 futures close, up 33.75 points or 0.82% on the day.

In the end there are three reasons for the ES going back up: 1. The 4120 area held again 2. Everyone got short at low prices 3. Today’s options squeeze all adds up to thin to win. In terms of the ES’s overall tone, obviously NVDA’s ~25% jump lit a match under the S&P and Nasdaq. In terms of the ES’s overall trade, there was a lot of two-way price action, total volume was 1.88 million contracts traded.

Technical Edge

Just a thought out loud: We have talked about it off and on for about two weeks now, but one does wonder when the S&P 500 will care about the 10-year yield (TNX) and the US dollar (DXY) hitting 10-week highs.

S&P 500 — ES

Are bulls back in the driver’s seat? ES needs daily-up over 4175.50 to put 4200+ back in play. 4115-4125 is key on the downside.

SPY

The SPY needs $416.50+ for bulls to press the recent high.

SPX

NQ

If the NQ can clear and hold 14,000, the upside extension is 14,234. That’s where it can go if bulls remain in control.

Downside zone for bulls to contain is 13,750 to 13,780.

For the QQQ, that upside extension area is ~$344.

MDLZ

The consumer staple trade has lost some luster, but MDLZ at the gap-fill and 10-week ema would be an attractive dip to buy. That’s around $73.90-ish.

$76 would be a decent first trim zone. Stop at $72 to $72.50.

SBUX

Former relative strength stock, SBUX has struggled post earnings and is now down 5 days in a row. Daily-up off the 200-day sma over $98.90 could get us back above $100.

In that scenario, entry is on the daily-up — $98.90 — and while $100+ could be a trim for quick traders, the ideal firm trim area is around $102 to $102.50. That would be the declining 10-day ema and the 50% retracement. Stop at $97.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO and UBER.

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

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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!