The ES traded up to 4704 early Wednesday morning and opened the regular session near 4697.
The ES then pulled back to a new low at 4687.75. One of the top trades during a pullback is to sell a higher open after a weak Globex close and that’s what took place in the first 30 minutes. Selling the higher open has also been the trend for most of the month.
After a small up-tick, the ES got hit by a sell program just after 10 am that pushed it down 13 points to 4672.75. From there, it rallied back up to 4678 before breaking down to another new low at 4668.
After some small back-and-fill action off the low, the ES eventually rallied back up to 4704.50 — half a point above the Globex high. From there though, it reversed and shed more than 12 points down a low of ~4692.
The ES chopped around before hitting an afternoon low of 4691.25 around 2:30 pm and traded ~4703 at 3:13 as the early MIM was showing $813 million to sell. The MiM swelled to $1.43 billion to sell but pared off as the ES climbed going into the 4:00 cash close.
The ES closed at 4702 at 4:00, rallied up to a new high at 4706.50 at 4:53, and settled at 4705.25 on the 5:00 futures close, up 20 points or 0.43% on the day.
The Nasdaq futures (NQ) closed at 16,505.50, up 183.25 points or up 1.12%, while the Russell 2000 futures (RYY) closed lower by 10.20 points and the Dow futures (YM) closed down 38 points.
In The End
In the end, there were two moves that defined the day’s trade: Selling the open and longing for a selloff later in the day. The trade was to buy the dip.
In terms of the ES’s overall tone, it shook off the early weakness and acted firm — but not as firm as the NQ. In terms of the day’s overall trade, a total of just 1.13 million contracts traded hands. Like I said a few times earlier this week, thin to win is definitely playing its part.
There are no shoulda, woulda, coulda’s in futures and options trading. You are either in or out and there is no in-between. That said, I wrote yesterday’s Opening Print Wednesday night and I try not to change the view based on overnight rips or dips.
I am a big believer in selling gap ups when the ES is in a downtrend, but as I have tried to explain, I know I should trade around my long position by selling on the gaps. However, I have a very hard time fading the overall trend while switching gears from short to long. I have done it successfully, but I have also missed the original trade idea by flipping the position and trying to be too active.
The PitBull says that “traders need to learn to trade the position.” Meaning if you have a good profit going, take some off and rebuy the dip. The flip side is that the ES keeps going up and you are afraid to add at higher prices (because you already bailed at a lower price) and hurt your cost basis.
I feel confident that the ES is going to rally further today. November tends to be a good month as it’s the first month in the best six-month stretch for stocks.
The recent ES double top selloff came at a great time, giving traders a ~42 handle fade from this week’s high. The options expiration has an upside bias and the shorts may cover, roll higher or let their position expire. All three catalysts could cause buying pressure and the BOTs have a bird’s eye view of what is unfolding.
I am long 4 ES and 1 NQ and I am looking for the ES to be up 25 or 30 points today. From the low, that’s not asking for too much.
How you play it is up to you. Lastly, I am looking for a trend day up. Good luck and have a good weekend.
Danny said “I try not to change the view based on overnight rips or dips,” and he is true to his word.
The ES again stalled at the 4700 area on Thursday. All throughout the chat room and on Twitter, we were talking about the building buy-stops that were accumulating between the 4700 to 4712 area. The longer the breakout takes, the more buy-stops are likely to accumulate.
Shorts who had buy-stops in this area are going to be frustrated, as the ES squeezed them shortly after the 6 pm overnight session began. The ES pushed up to the 4720 level, where it ran into some resistance. They’ll be frustrated because it reversed around 3 am.
Danny was initially looking for 4720. I said 4725 to 4728 was a reasonable upside target. After topping out at 4723.50, the ES reasonably satisfied those targets, but because it came in the overnight session, there’s something unsavory about it.
With a fade underway now — and the ES down about 15 handles from Thursday’s close — bulls are hoping to see a buy-the-dip open and jam the ES back up to those overnight highs.
Above is a one-hour look at the ES. You’ll notice that yesterday’s low came within a point of our 4667 risk level — this week’s low.
We’ll have to watch for a potential undercut of yesterday’s low on a nasty open. That said, back over 4700 could quickly put the prior high back in play at ~4712, followed by the 4720 to 4723.50 area.
The one thing that really bothered me yesterday was the poor breadth — and it was across the board.
The NYSE registered a 71.5% downside volume day while the NASDAQ registered a 68% downside volume day. That’s not great breadth, especially as the S&P 500 closed higher by 0.34% on the day and Nasdaq climbed almost 0.5% — and as the futures for both indices popped to all-time highs overnight.
Worth noting is that the VIX climbed almost 3% on the day too.
Are we outright bearish now? No, but we are aware of the situation that could be developing.
The NQ gave us a push up through our 161.8% target, a very rewarding run as it’s now working on its fourth straight “up” day and its sixth gain in the last seven sessions.
That said, we did hit our target — justifying a trim and raising our stops — while we have some bearish divergence as the NQ hits new highs.
Here’s the thing: We don’t get bearish (or bullish) just because of divergence. We need accompanying price action to go along with it, such as a rotation or a reversal. Then we pay a lot of attention.
Admittedly, the bad breadth — and it’s been poor for the last two days — is something to note. So is the fade in the ES and the NQ after achieving some of our upside targets?
That said, the monthly Opex expiration is having an impact on some of the choppiness, so mixed signals are to be expected.
Additionally, we need some more concrete evidence that the trend is turning and we won’t have that until Friday’s action kicks off. Depending on how expiration impacts the day, we may not have much proof until later this month.
Disclaimer: Charts and analyses 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!