Flash Dance: Program Trades Ahead

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

Our View

Last week’s shortened 4-day holiday week was murderous, and the week ahead is going to be another CPI/PPI head-banger. With all the rate cut talk, no one seems to be too concerned about the U.S.’s ever-rising debt. The cost of paying the daily interest on the U.S.’s $35.3 trillion debt has soared to $3 billion a day recently, double what it was in 2020, and up $2 trillion from two years ago when the Fed began to raise interest rates. In the process, it made servicing U.S. debt more costly as treasury bonds paid out higher yields. But with the Fed now poised to start cutting rates later this month, the reverse can happen. Cutting interest rates by 1% point and the yield curve declining by 1%-point would lower the $3 billion per day to $2.5 billion per day.

On top of this, the federal government closes out its fiscal year at the end of this month, and the year-to-date cost of paying interest on U.S. debt was already at $1 trillion months ago. Then you throw in the election, and Trump’s tax plan would raise the deficit by $5.8 trillion over 10 years, and Harris’s plan would increase it by $1.2 trillion over the same period of time. I pulled all the info above out of a story by Fortune magazine, and here is the link.

We all know this is out-of-control spending with no ability to pay it down. Right now, the BRICs consortium to replace the dollar is not working, nor is Russia’s move to use the yuan. I don’t know how this is all going to pan out, but I know it’s not going to be good. I remember hearing the Fed money printing was not sustainable 16 years ago during the 2008 credit crisis when the debt was $10.3 trillion. In the last four years, the U.S. has racked up more debt than over the last 30 years. UNSUSTAINABLE!!!!

Our Lean

What happens when the ES closes weak? It rallies. Probably 25 years ago, you could buy or sell a firm or weak close—it was called momentum trading. Even though it rarely works, people still try doing it. Part of what the PitBull used to complain about when I was doing the UBS index program trading was how it artificially moved the SPU around. He was long, the futures dropped, in came the sell programs, and it was my fault, and UBS should be thrown in jail.

Well, fast forward 30+ years later, everything is rotations and algorithmic trading, and he’s still complaining. One of the patterns we watch is keeping track of the 7 1/2 hours from 9:30 ET to 5:00 PM as this sometimes dictates direction, or 6 1/2 hours from 9:30 ET to the 4:00 PM cash close.

Just set up a small spreadsheet, keep track of the ES and NQ over a few weeks, and you will see a direct correlation between the time of day buy and sell programs go off—10:00, 10:30, 11:00, 11:30, 12:00. If there is a constant buy or sell program into the half hour, it may be the sign of an all-day buyer or seller..  

Our Lean: There should be no shortage of program trading today. The ES made a high on Sept 3 at 5666.25 and sold off down to 5394.50 after 4:00 on Friday—that’s a 272.25 point drop. Below are the retracements.

Retracements

I did another set of retracements from the August 5  5120.00 low to the September 2 5569.50 high to Friday Aug 6 low equals a  275.5 point drop.

I think if volume thinks out we could see a larger bounce, it seems like 50 or 60 points has been a search. so the 5450-5460 area.   

MrTopStep Levels:

MiM and Daily Recap

The ES tumbled down to 5466.50 on Globex Thursday night, rallied back up to 5490.00 at 8:27 with 240k ES traded before the 8:30 ET jobs report, dropped down to 5470.00 and then rallied 45 points up to 5515.00 after U.S. payrolls grew by 142,000 in August, less than expected, sold back off down to 5483.50 and then rallied up to 5522.75 at 9:28. Globex volume jumped to 390k.

The ES opened at 5515.50 , traded 5523.75 and then rallied up to the high of the day at 55321.50. This is going to be an easy recap, the ES, pulled back 31.5 points down to 5501.00, rallied up to a lower high at 5523.00 and then dropped 91.25 points down to 5431.75, with 474k contracts traded on the break, rallied 39.75 points up to 5471.50 and then dropped 57.5 points down to 5414.00, rallied up to 5428.00 and then sold off down to a new low at 5412.50 at 12:54. After the low the ES rallied 23.5 points up to 5436.00 and then broke down to 5414.50 at 1:51, rallied up to 5426.50, sold off down to a new low at 5410.25 and rallied up to 5434.75 at 3:30 and then sold off down to 5417.50 at 3:40 and traded 5429.25 as the 3:50 imbalance showed $1.2 billion to buy, traded up to 5432.50 at 3:51, dropped down to 5412.50 at 3:56 and traded 5420.25 on the 4:00 cash close.

After 4:00 the ES sold off down to 5394.00 at 4:55 and settled at 5419.50, down 92.75 points or -1.9%%. The NQ settled at 18,458.25, down 505.25 points or -2.55%, 10% off its record close.

In the end, there was a big liquidation, on the NYSE at 3:59 there were 460 million shares traded and in the last minute they did over 400 million shares. In terms of the ES and NQs overall tone, they were weak and it was sell every rally. In terms of the ES’s overall trade, volume was high at  2.37 million contracts traded.

By now the BULLs should be convinced that this is the same selling as the Great Rotation. The big institutional accounts have been selling into the ‘rate cut’ rally for weeks and the dumb public was still buying into it. The selling is the big front run leading up to the event, the Sept. 17-18, 2024 rate cut. Maybe after that the markets bounce. 

Technical Edge

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/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!