The S&P up ticked early and then sold off as crude oil pushed down to the $46.25 level. According to the Stock Trader’s Almanac the day before before the last trading day of August has the S&P down 15 of 19 occasions. Both statistics combined made for some very weak trade.
As crude oil tumbled the S&P emini futures (ESU16:CME) ran sell stops and sell programs on the way down. Late in the day the buyers showed back up in the cash market pushing the ES off its 2168.50 low all the way back above 2176.00. A higher low from both last Fridays 2157.50 low and Mondays 2164.75 Low. Overall trade and volume picked up when the ES sold off, but volume tapered off late in the session.
All About the Last and First 3 Day of the Month
Your indicators won’t show you when the mutual funds decide to start buying stocks. Over the last several years we have done our best to try to explain what forces believe are at work. Long and short term statistics, and following mutual fund flows, are are the top of the list. Before I look at the charts I already know what the historical stats say. I know some people don’t believe in them but over 30 years in the S&P I have seen the market react to them far too often to overlook them. It’s not hard to get a copy of the Stock Trader’s Almanac and Amazon has a deal to buy it goo.gl/UNpxGJ.
After I left the trading floor there were only a few tools I took with me that actually work. The MrTopStep Trading Rules 101, along with the the Stock Trader’s Almanac, sit on top of my trading tool box.
3 Parts to the Trading Day
The 3 parts to the trading day idea worked great yesterday.
Part 1.) What happens on Globex overnight
Part 2.) What happens after the 8:30 CT open
Part 3.) What happens after 2:00 when the mutual funds buy or sell
Patterns are everything when it comes to trading. If we notice that the ES is ‘bid’ all morning then we know the mutual funds probably are buying stocks. If you see early sell programs, and you follow the current patterns, we know that Part 3 may show back up late in the session.
Many years ago I noticed how the mutual funds would come rushing in to buy stops late in the day on fridays. That’s how I coined the trade the ‘Late Friday Rip’. Like the Pit Bull always tells me, ‘Nothing I use works anymore.’ He knows we live in an ever changing trading environment. That’s why we constantly have to be paying attention to the current pattern and stay with it until it changes.
On Globex (part 1) the S&P traded sideways to lower. Part 2, after the 8:30 open, the futures rallied and then sold off. During Part 3 the futures rallied. While so may say the 3 parts are connected, I think they are three totally separate sessionsm all with separate agendas, and need to be traded that way.
The Big Picture
Recently, Jeff Hirsch from Stock Traders Almanac remarked how blue chips stocks have been sluggish as of late, and that most of the market’s gains have come from small caps.
He continued by saying:
“This lack of momentum has been accompanied by even greater bullish sentiment with Investors Intelligence Bullish Advisors % moving up to 56.7%, its highest level since mid-2015 – and it’s been over 50% for seven weeks now. CBOE Weekly Equity Only Put/Call ratio has been equally as complacent over the past two months in the 0.56-0.67 range. The recent lack of momentum, added to all this frothy sentiment increases the risk of a pullback or correction in the near term.”
Asia & Europe
Overnight equity markets in Asia and Europe have been mixed. The S&P 500 futures have traded in a 3.75 handle range, making a 2172.50 low early in the European session, and a high of 2176.00 just before the Asian close. The ES is currently sitting 2174.75, down two ticks on the day, as globex volume is around 85k at 5:45 am cst. Today’s calendar doesn’t have anything market moving, unless the crude number somehow affects the market.
The last two days have been inside days. Going into today’s regular session, it appears that there may be some upside momentum above 2176, or downside momentum below 2172. Bears need to set up a break of yesterday’s low today, then a run on Friday’s low tomorrow, and look for more risk off on NFP. Bulls need to get back and close above Monday’s high today, then grind higher tomorrow with the market at new highs on NFP. I think 2200 and 2150 are both magnets and the S&P is currently caught in a tug of war.
In Asia, 6 out of 11 markets closed lower (Nikkei +0.93%), and in Europe 6 out of 12 markets are trading lower this morning (DAX -0.18%). Today’s economic calendar includes Bank Reserve Settlement, a 2-Yr Note Settlement, a 5-Yr Note Settlement, a 5-Yr TIPS Settlement, a 7-Yr Note Settlement, Eric Rosengren Speaks, MBA Mortgage Applications, Neel Kashkari Speaks, ADP Employment Report, Chicago PMI, Pending Home Sales Index, EIA Petroleum Status Report, Farm Prices, and Charles Evans Speaks.
Our View
We have a big economic schedule today, but that’s not going to stop the ES from moving higher. Lets keep it simple stupid. Our view is to buy weakness. We know it will be a two way trade, but we think the lion share will be on the upside.
As always, please use protective buy and sell stops when trading futures and options.
Catch Danny Riley LIVE on Periscope for ‘The Final 45’ today at 2:15pm CST.
- In Asia 6 out of 11 markets closed lower: Shanghai Comp +0.35%, Hang Seng -0.17%, Nikkei +0.93%
- In Europe 6 out of 12 markets are trading higher: CAC +0.55%, DAX -0.18%, FTSE -0.26% at 6:00am ET
- Fair Value: S&P -1.27, NASDAQ +0.61, Dow -9.57
- Total Volume: 1.37mil ESU and 3.8k SPU traded
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