After a 9-to-1 up day on Wednesday, Thursday was a 9-to-1 downside day. When I say you can’t make this stuff up, I mean it!
Today is the end of the third quarter, as investors look to turn their attention to October and Q4. It’s also the day that JPMorgan will put on another massive collar trade. These quarterly trades (as part of one of their actively managed mutual funds) create massive flow during the end-of-quarter days.
Andy Constan does a great job describing the situation and estimates there will be about $12 billion sold in the futures market today:
Our Lean — Danny’s Take
Trading is getting harder. I used to just pay attention to the US, but now you have to add currencies, bonds, and bonds from other countries, along with what every major central bank is doing and it’s a lot of information to take in.
Then there are the algos.
I have to admit, I feel totally outgunned by the buy-and-sell programs that pop off at any second. It was one thing when the ES would move 40 to 60 points in a session, but now we are back to 100+ point ranges. The average daily range for the last five sessions has been 109 points.
It’s great if you play it right, but you’re burnt toasts when you’re wrong.
Our Lean: We know a rip is coming, but we just don’t know when, so until then we are still looking to sell the rips. If the ES closes weak today, I think it could be down hard next week.
So far, each rally has been getting weaker and weaker. Now we have Stanley Druckenmiller saying we’re in “deep trouble” and famed technical analyst Tom DeMark warning that “Our indicators continue to flash downside risk” for equities.
So while we are trying to find the positives, there are still concerns for “something bigger” brewing out there and so far, every rally has been a sale. We’ll see if that changes in Q4.
The ES rallied up to 3751 on Wednesday, then fell down to 3673.50 overnight and opened Thursday’s regular session at 3694.25. I could do a big ‘blow by blow’ of all the rips and dips but after the open, the ES traded up to 3697.50, then plunged 65 points down to the early low at 10:10.
It bounced 33 handles to ~3665 (just above last week’s low) at 11:00, pulled back 18 points, and then pushed to 3672.50 just before noon. That led to another 50-handle wipeout down to a new contract low of 3622 at 2:20. The ES rallied 19 points, pulled back and put in a higher low, then climbed 27 points into the 3:50 MIM reading.
The ES traded 3651 as the 3:50 cash imbalance showed $1.3 billion to buy, climbed to a high of 3658.75, and traded 3654.50 on the 4:00 cash close. It settled at 3658.75 on the 5:00 futures close, down 73.25 points or down 1.96% on the day. The Nasdaq futures (NQ) settled at 11,234, down 321.75 points or -2.87% on the day.
In the end, it was a stunning reversal. In terms of the ES’s overall tone, it was weak. In terms of the ES’s overall trade, volume was high at 2.8 million contracts traded.
Daily Range: 114 points
NYSE Breadth: 16% Upside Volume (!)
NASDAQ Breadth: 16% Upside Volume (!)
Game Plan: S&P, Nasdaq
On Thursday the S&P 500 made new 52-week lows for the second time this week but closed above the prior low from June — albeit, barely. The QQQ made new lows, but again, closed above the June low (while the Nasdaq Composite or NQ did not make new lows). Neither did the Russell (IWM, RUT, RTY).
That’s interesting, as these “risk-on” indices tipped their hand 9 months ago by not making new highs with the S&P and Dow, and now they’re trying to hold off on making new lows while the latter two are (SPX and DJI).
We keep seeing the market hammering the June low, but showing a lot of reluctance to break below it, let alone close below it. Obviously, quarter-end has the potential to bring some wild price action as the funds allocate new money and rebalance their portfolios.
We’ll see if that’s enough to break support or hold it for another day.
Bulls have to like the way the SPX continues to hold the June lows, but they can’t be too confident with 3750 acting as a ceiling while active resistance (the trend) continues to squeeze lower.
The same situation continues to build in SPY, as $363 has been in a “bend don’t break” situation all week, while $370.50 has been resistance.
It’s constructive that we keep getting a “look below” the June lows and closing above them, but it’s concerning that the S&P can’t get enough traction to reclaim the $370 to $373 area and close above the 10-day moving average.
Really, that’s what we’re waiting for — a break of one of these levels.
S&P Futures — ES
The S&P futures show the same thing: A reluctance to close below the contract lows from June, but a hesitancy to make a notable push higher.
A break of 3639 that isn’t reclaimed puts this week’s low at 3613 in play. On the upside, 3750 is resistance until proven otherwise.
ES — The Trade
Above is a 30-minute chart of the ES. As you can see, we are currently bouncing off the 3640 zone, which is the June contract low and the Globex low.
Initially falling on a disappointing PCE reading, we have some clear levels to watch.
Pivot: 3660 to 3670.
Above the pivot and the 3690s are a big level, followed by 3710 and finally, 3730 to 3735.
Below the pivot and 3640 remains vulnerable. If 3640 holds as the Globex low coming into the regular session, this level becomes vital for the bulls to defend and the bears to break.
A break and failure to reclaim 3640 puts 3622 in play, then 3613, then 3585.
Nasdaq — NQ
Let’s keep the NQ simple here.
Pivot: 11,230 to 11,250. Above this zone and it’s possible that the NQ pushes into the 11,350 to 11,380 area. Above that and the 11,500s are possible.
Below the pivot and 11,150 is vulnerable, followed by this week’s low at ~11,091 and the 2022 low at 11,068.50.
*Feel free to build your own trades off these relative strength leaders*
Numbered are the ones I’m watching most closely.
Bold are the trades with recent updates.
Italics show means the trade is closed.
Relative strength leaders →
ENPH — holding the breakout near $269
LNG — nearing the breakout near $150 — Monster Reaction
MCK — holding the breakout near $340
CAH — holding the breakout near $64 — Monster Reaction
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!