Like many occasions when the ES closes weak, it rallied first on Globex.
In yesterday’s case, that meant a move up to 4661.50. On the 9:30 futures open, the ES traded 4656 and immediately dropped down to 4644 at 10:33. The ES then rallied up to a lower high at 4652.75 and then dropped down to a higher low at 4647.
After the push, the ES got hit by several small sell programs that pushed the ES down to its early low of the day at 4643. From there, you could just about draw a line in the sand at 4643 to 4644, with each dip holding this area as support — even as the rallies lost steam on the upside.
The ES traded 4645 as the 3:50 cash imbalance showed $331 million to buy and sold off to a new daily low at 4642 at 3:59 before trading 4644 on the 4:00 cash close. After 4:00, the ES traded in a 3-point range and settled at 4646.75 on the 5:00 futures close, up 2.25 points or +0.05% on the day — basically flat.
In the End
Yesterday is what MrTopStep calls a “no day” — meaning no volume and no trade. In terms of the ES’s overall tone, it was weak and unable to hold the rallies. In terms of the ES’s overall trade, total volume was low at 971,000 contracts traded. Let’s put it this way, you could tell it was Veterans Day with the bank and bond holidays.
It’s the same question, over and over: When is the ES going to bounce and jump to new highs?
One of the most basic (but totally on point) MrTopStep trading rules says, “It takes days and weeks to knock the ES down and only one to bring it back.”
That is how every decline ends and that’s how this one will too. I think if you want to go for the year-end ride you have to be willing to take a little pain and be willing to add when the ES sells off. The problem is, will it actually sell off or will it willy-wag around and then gap higher and take off?
What I do know is that the short sellers are locked and loaded and the longer a decline takes to happen, the lower their odds for success become. When I look at the daily chart of the last few days, it looks like a big back-and-fill pattern.
However, when you rally off a weak low on Globex and the ES is in a downtrend, you have to sell into the gap-ups or early rallies. Yesterday highlighted this observation. When the ES sold off at the end of September and early October, I told the MrTopStep room to buy the Jan 4850 and 4900 calls. I still think that way.
The continued weakness in the S&P is due to Elon Musk exercising the stock options he received as part of his compensation package — he sold more than $5 billion worth of stock the other day. Most of the proceeds will go to cover tax withholdings obligations. According to regulatory filings, the sales were made under a preset trading plan Musk set up on September 4th that enables the company’s insiders to sell based on a set schedule without getting in trouble for insider trading.
Musk reported that 900,000 shares were sold from $1,135 to $1,196 on Monday near the record highs. Musk lowers his tax bill the lower the stock price goes if he continues to exercise his options. It was only a few years ago that people were saying the company was fake and that it would never work. Today he is the richest man in the world.
I had part of yesterday right, which was to sell the early rally. However the other part — buying the dip later in the day — had trouble gaining traction. If you were buying the reversals off of support, it was a decent cash-flow trade, but the ES couldn’t maintain any upside momentum.
Our Lean is for an early rally today. If the ES is at or near its highs at 2:30, it doesn’t mean I won’t sell a rally, however, my gut says there’s a little buying opportunity today. If the ES does go south, it will need to take out 4620. Pick your poison.
Thursday was an odd session. As Danny said, there were great cash flow opportunities in the ES that were called out throughout the day. What is a cash flow trade? It’s a short-term reversal.
When the ES — or NQ, YM, or any other liquid asset —- undercuts a prior low or major level, quickly bottoms, and reclaims that level, it’s a reversal. The new low is our pivot where we can put a stop-loss while we look for a move back to the upside. Reversals can happen on the upside too when it fails to hold a prior high or major level.
These trades are not to be used every day, as they are disastrous on trend days. However, they work well in choppy conditions like we had yesterday.
The indices — as well as many big stocks — gave us an inside day yesterday, with the trading range entirely contained within the prior day’s range, (Thursday’s range contained within Wednesday’s range). That’s what we had with the ES, too:
With the inside day, we’re now looking for some kind of follow-through. Specifically, that’s a push up through yesterday’s high at 4661.50 or through the low at 4638. The range is tighter if we exclude Globex (4658.25 high and 4642 low).
Beyond that, we can zoom in a bit using the H1 charts. When doing so, you can see how important a daily-up rotation would be over 4661.50. A break over this level puts 4677 to 4680 in play. If the ES can push above 4680 and sustain above it, traders will have their eyes back on 4700.
Yesterday we wrote that “On the downside, it’s preferable that we hold 4645 to 4650.”
So far, we’re trying to hold the bottom side of that range. However, if the ES can’t hold 4642, the 4638 level is in play a few points lower. A break of this level that fails to reverse could put this week’s low in play near 4625.
That would put the 4620 support level in play that Danny mentioned above.
The DIA finished lower by 45 basis points, while the SPY and QQQ were basically flat. However, the IWM gained almost 1% on the day and was the clear outperformer. At one point, it was up 1.28% on the day.
Yesterday I said we wanted to see the IWM close above $240 this week. Well, today’s decision time. If we get some follow-through to the upside, the IWM could easily close above this mark.
If it closes daily-up (over yesterday’s high), then I believe the Russell is a candidate to retest its all-time highs.
The Bottom Line: Everyone wants to be so quick to call a top or be ahead of the 3% correction. Fine. But let it show in the charts, first. We have a peak-to-trough loss of almost 2% in the S&P amid a very bullish trend. I’m not here to fight this trend unless the reversal signs start piling up.
I’m looking for inside-and-up days in a few stocks, which include: MSFT, ICE, COIN, RBLX (a bit wider of a range), and GOOGL (holding the breakout level at ~2900).
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!