Did Bonds Just Bottom?

Beware of the “walk away” trade today.

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Our View

There were some good rallies to sell on Thursday, but as I mentioned yesterday, the tone/short-term trend changed after Wednesday’s rip. That said, there is still some big selling earmarked for today — the last trading session of Q3.

CTA update: We estimate in a flat tape, CTAs will sell $63 billion of global equities (out of which $37 billion are US Equities). If we stay at current levels, the selling over one month will be $93 billion globally (out of which $46 billion is US Equities).

The big question here is, how much of this selling has already been done?

Our Lean

Yesterday was rough. Despite not believing it, I said we could see 4350 and the ES rallied up to 4355.75. The markets are oversold, but it’s the short-term options driving the index markets higher — AKA 0DTE.

When the short premium sellers get caught, they get margin calls. So they either roll higher, buy futures, or get out. All it does is add buying pressure.

Our Lean: You can shoot me if I am wrong, but something tells me we see higher prices initially today but it’s after 12:00 that I want to see. Sell the early rallies and buy the dips, but all bets are off if the ES starts breaking under 4290.

As for levels, Rich Miller (HandelStats) provided the following:

Upside: An hourly close above 4355.65 targets 4364. Above there and the 1 sd level 4372.29 is in play. Hourly close above there targets 4379 and 4382. Hourly close above there and NO stopping it until 4406.57.

Downside: An hourly close below 4352 targets 4346.50, then 4341, below there and the settlement price is in play. Below settlement targets 4327.62, then 4311, then -1 sd 4303.71.

MiM and Daily Recap

The ES traded up to 4328.25 on Globex and opened Thursday’s regular session at 4307.25. After the open, the ES traded down to 4303.00, rallied up to 4315.00 at 9:36, dropped down to a new low at 4301.00 at 9:44, and then rallied up to a 4325.25 double top. From there, it pulled back down to the 4318.00 level, made a lower high at 4324.75 and then sold off down to 4305.50 at 10:33. Quickly, the ES then rallied up to the 4317.50 level at 10:43, then climbed back up to a new high at 4326.75. I try not to do every turn, but the reason I am pointing this out is the sheer number of points the ES has traded in the first 75 minutes of trade going from sell programs to buy programs and bombarding the futures in the process.

After the new high, the ES made six new highs: 4326.75 at 10:51, 4327.25 at 10.57, 4328.00 at 10:59, 4330.25 at 11:10, 4335.00 at 11:26, and then up to 4346.50 at 11:48. The ES traded 4349.25 at 11:54 and then rallied up to the session high at 4355.75 at 12:31.

Crazy, through all of those new highs, the largest pullback was 7 points with most of them 4 or 5 points. After the high, the ES pulled back exactly 20 points down to 4329.50 at 1:46. After the low the ES rallied up to 4344.00 and then dropped down to 4327.50 at 2:37, then rallied back up to 4351.00 at 3:30 and then sold off down to 4332.50 at 3:40. From there, it climbed up to 4339.75 at 3:47 and traded 4335.50 as the 3:50 cash imbalance showed $380 million to sell and traded 4338.25 on the 4:00 cash close, rallied up to 4343.50 and settled at 4342.25 on the 5:00 futures close, up 20.25 point or 0.47% on the day.

In the end, yesterday’s short options rip showed up again. In terms of the ES’s overall tone, it was small early sell programs followed by larger buy programs. In terms of the ES’s overall trade, there was high volume: 408k traded on Globex and 1.539 million traded on the day session for a total of 1.947 million contracts traded.

Technical Edge

ES

Remember Rich Miller’s levels today as laid out in the Lean. Below are a few more.

TLT

Did the bonds bottom? The TLT and /ZB put in a nice reversal yesterday. If they continue to rebound, the ES should follow.

Open Positions

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!