Fed talk and economic news should improve tradability .

Start looking for channel test. Should see range breakout this week.

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

I’m not kidding, I started the OP looking for good news. While I found some, they weren’t exactly mainstream. Stories like a woman opening a cafe to help people with disabilities, employing 63 people (80% of whom have disabilities), or a US Army veteran who had a surfing accident 20 years ago and can now breathe on his own. Or the story of a blind teen who communicates best through music and sang the national anthem at a Columbia Fireflies game, reaching millions around the world. Another example: Nets star Mikal Bridges fulfilled his dream of working as a teacher for a day. These stories remind me that there is good news out there, even if it’s not the headline.

I’ve always believed in the human spirit and the saying, “When the going gets tough, the tough get going.” Winston Churchill also said, “Success consists of going from failure to failure without loss of enthusiasm.” That’s me—success came, but not without failures.

Good stories are out there, but they’re often overshadowed by the bad news, which the public has become conditioned to. It’s time to get back to reality.

MiM and Daily Recap

The ES made a Globex high of 5906.50 at 9:24 AM and opened Friday’s regular session at 5898.25. After the open, the ES sold off to 5886.50 at 9:35 and then rallied 14.75 points up to 5901.00. It then sold off down to a higher low at 5891.25 at 10:39, rallied 14.5 points to 5905.75, and sold off again to another higher low at 5897.75. After the pullback, the ES started to run buy stops, with several buy programs hitting, pushing the ES up 16.25 points to 5915.50 at 2:27 PM. It then sold off down to 5901.25 at 3:42 PM and traded at 5903.00 as the 3:50 NYSE imbalance showed $600 million to buy. The ES traded at 5906.25 on the 4:00 PM cash close. After 4:00, the ES traded up to 5909.75 and settled at 5906.50, up 20 points or +0.34%.

The NQ settled at 20,844.25, up 100.75 points or +0.49%. The RTY settled at 2,292.10, down 5.60 points or -0.24%, while the YM settled at 43,532.00, up 21 points or +0.05%.

In the end, it was a long, choppy, and low-volume trading day. In terms of the ES and NQ, they were firm overall, but late-day selling showed up again. ES’s overall trade volume was low, with 882K contracts traded, and when you exclude the Globex and algos, retail volume was under 100,000 contracts. The YM closed up 1% in last week’s stock market trading, hitting another record high on Friday. The S&P 500 index climbed 0.85%, setting an all-time high Thursday and a record close Friday. The Nasdaq composite advanced 0.8%, not far from record highs.

How to read the MIM

Technical Edge

MrTopStep Levels:

How to read/use the MrTopStep Levels

Guests Posts – Spot Gamma

Channel Trading at All-Time Highs

Both SPX and NDX have been stair-stepping through progressively new all-time highs as prices are now closing in on the 5900 SPX Call Wall (We hit highs on Thursday at 5878.46.) But despite record prices, the percentage ranges themselves have remained small (as we would expect in positive market gamma).

With positive market gamma to help absorb shocks and keep percentage ranges tight, it often outperforms the market the most going for steady cash flow with small, frequent, and high probability trades such as credit spreads or simply selling the highs and buying the lows of sideways channels. It also means that breakout traders and most long vega traders are losing money unless timed exceptionally well because they otherwise have a negative edge in this environment.

As an example from the Thursday HIRO flows on how to sharpen the timing of mean-reversion trading, we could see a spiking pattern in call flows (orange) while the price (white) was still bound for a couple hours of consolidation before legging down. A spiking flush pattern like this generally tells us that there will not be a trend up (and instead a down or a sideways move) unless call flows pick up again and break out into higher territory.

What the HIRO flows were telling us is that calls were selling off since noon (and weighing down on equities). But shifting to the charm lens in TRACE, the rest of the day from after about noon had very bearish charm flows (where red is surrounding the price).

It is normal for prices to end up wedged in between buying below and selling above (pinned), which is what happened here where the price was pressed down and wedged at the low of its range.

Moving on to Friday, we can see two call flushes from the top and one put flush from below showing where the options-driven boundaries of the range are, and where that range is being steered by the most recent pivot.

In contrast, range days usually do not have these flush anomalies threatening to interrupt a strong intraday trend. These flush signals indicate that the options-driven energy behind the trend is gone, which can be confirmed in real time if HIRO flows continue to drop after that flow spike.

In line with the bearish HIRO call signal pattern after the bullish put signal, the context from the TRACE live gamma map is that we can see how an organic Call Wall formed at 5870, even though the daily model has it at 5900. Functionally, 5870 became the Call Wall by taking over the heatmap, and from what proved to be 0DTE dealer long calls, which meant a burst of positive gamma at this strike.

Tactically, when we see this, it suggests to us that the price will be stuck in sideways movement for a while, and that it should take a fair amount of energy to break out of that, of which we should see beforehand in the background with the flows.

To conclude with the status of the IV term structure, on Friday there was finally a lack of defense on the volatility bid and IV even sank on Nov 6 (the date after Election Day). The other main dimension here is that we are in full-blown earnings season and this has the market distracted. With only two weeks before the election, it could be that the market is too distracted by earnings to be properly hedged for the election, and an underhedged market is a vulnerable market.

Either way, we expect excellent volatility trading opportunities on both sides; for now, durations at Nov 5 or earlier have comparatively very low IV. For those looking to write options and harvest premium, the best candidates would arguably be with longer durations where there is some event IV to short.

We hope that you will join us this week as we navigate peak earnings, all-time highs, positive gamma conditions, and slightly elevated implied volatility from election risk.

You can sign up for our daily analysis here:

Our very best,

The SpotGamma Team

Polaris Trading Group Summary Oct 18th:

On Friday, October 18, 2024, trading in the PTG room started with a focus on short setups in Crude Oil (CL), as PTGDavid noted that the OPR (Open Range) short targets were being filled early in the session. By 9:38 AM, all targets for the Crude Oil short had been fulfilled, marking a successful trade. The key “Line in the Sand” (LIS) for the day was established at 5885, providing a reference point for future trades.

As the market progressed, PTGDavid shifted attention to the Nasdaq (NQ) with a long setup, and Target 1 was filled by 9:45 AM. However, due to the influence of options expiration (OPEX), the market was mostly choppy, leading to a neutral bias. David repeatedly emphasized the importance of patience, humorously reminding traders to avoid becoming “the patient” themselves. There was little momentum in the market during the morning, and David advised to “sit on hands” (SOH), meaning to stay out of trades during the chop.

By midday, David noted that the session had been uneventful and light, encouraging traders to relax and even take the rest of the day off. He checked out by noon, although the charts remained online for those still following the market.

In the afternoon, price action finally picked up as the market held the key level of 5885 and rallied to the 5910-5915 zone, hitting the targets outlined in the Daily Trade Strategy (DTS). Despite the grind due to OPEX, this move provided a solid opportunity for traders following the bull scenario.

The day ended on a positive note with gamma pinning levels being watched closely, and David signed off at 4 PM wishing everyone a good weekend. Overall, patience was key, and traders were rewarded in the afternoon after a slow start. Lessons included the importance of avoiding trades in choppy conditions and being patient for more defined moves later in the day.

DTG Room Preview – October 21, 2024

Overall, it’s a day to watch for any significant moves around Tesla’s upcoming earnings, Treasury yields, and the response to Middle East tensions affecting oil prices.

Economic Calendar

Full 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!