How I Learned to Read the S&P: Street Smarts vs. Theory

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Our View

As you know, I tend to be somewhat conservative when it comes to levels. When I say buy the 20 to 40-point pullbacks, it ends up in a larger range. When I say 40 to 60-point pullbacks, like yesterday, it’s just 15 to 20. I had a feeling after all the drops and recoveries that the buy stops above 6100 were dead meat, and they were.

This is a post I made on Twitter:

$ES $SPY $SPX As I have said hundreds of times, I don’t pretend to be smarter than you. When most of you were in college, I was fighting it out on the CME floor (for real), but I learned a lot about how prices work, price action, and fair value. The markets talk to me, they really do.

Here’s the LEAN from yesterday’s Opening Print:

Our Lean: This 6020-6100 range can’t last forever, and my guess is we still take out the stops above 6100—but when? It’s 8:00 PM, and the ES has a 6086 high. One good buy program, and the ES could blast through resistance, but so far, it’s been a brick wall. That will change.

I really believe what I wrote about not being smarter than you is true, but I also think I have better street smarts. No one taught me how to trade, and I still have problems with some of the simple stuff like setting up my charts and not really understanding how all the economic releases work.

Years ago, I worked for a well-known desk trader who told me that all those years of watching the quote board on the floor had developed my pattern recognition. I agree but I have also adapted to several trading rules that are timeless. I admit they don’t work all the time, but what does? You have to find those things that you constantly notice and make sure you pay attention to them. Over time, you can add more (like I have), and it really improves your ‘feel’ for the ES.

Yesterday was one of those days. There may have been a few small short trades that worked, but the index markets were on a mission. When it’s like that, you either go with it or stand aside.

The PitBull taught me a lot, but he still likes to fight it. I tell him what I write in the OP, and it shows up in his email every day. He still remembers the floor, he’d call up and say, “I think they look weak,” and I’d respond, “The pit is short, and there are paper buyers.” He’d still sell, and then rip me a new one when he was wrong and covering. He was by far the toughest customer I ever handled. He was mean as a billy goat and would say things that would piss me off, but I just let it bounce off me. He told me a long time ago that none of his old trading tools worked anymore, but he still uses them.

One trade I noticed was it was easy to get off three sell programs for UBS, and I saw how Moore Capital would sell right into them. I’d be bidding for the S&P at a discount to the S&P cash and selling 500-lot SPUs for Moore. But when we got to the 4th and 5th sell program, the firms that did program trading were bidding. I told him hundreds of times to buy the SPU into the 5th sell program—just buy the futures—but he would get short, and up they would go. This trade worked 90% of the time. I didn’t tell a lot of people, but I told Steve Lau, the UBS program trader. Despite the program levels not being as cheap, he would tell me to bid for 100. He didn’t get them all the time, but when he bought the futures and didn’t sell the cash, the SPU would rally 10 handles in 15 minutes. While the PitBull was covering, Steve Lau was making $300k on his trade.

I think that’s where I really learned to read the S&P—a kind of too-long, too-short setup. I’m sure many of you don’t just use your charts to buy or sell. The price action speaks for itself, just like yesterday.

Do I have any regrets? Kinda. My brother Bill went to Notre Dame and played football. My other brother went to Springhill Academy, a golf college. My brother Pat went to the University of St. Paul, had only one semester left, and never finished. My sister went to the Chicago Art Institute. My dad’s company was going out of business, and he had gone to ND and he really wanted me to go, but his company was folding, and I didn’t want to be a financial burden. So, I became a runner on the CBOT floor, running orders to the corn, wheat, and bean pits, making $75 bucks a week.

I always thought that if I had a better education, I could have gone further. But I knew the floor was the land of opportunity, so I took the ball and ran with it. I would run into competitors in NY and other places in the ES. I traveled to so many places around the world no one from the floor was going to like Dubai during the Gulf War, having dinner with Sheikh Mohammed from Dubai, or having a beer with the largest trader in the world from ADIA, who ran $800 billion.

It’s all true about the CME and the fights I had with the broker groups. If I had given in, I would have ended up like 90% of the people who worked for them, beaten and broke. I actually felt bad for many of the floor people who worked for them, but they were relentless. They never stopped screwing me over, and I never stopped fighting back and that’s why I beat out the guys at Merrill, Goldman, JPM, UBS, Refco, and so many others.

I had a very weak partner who the broker groups would take advantage of, and he would come crying to me. At times, I had my own desk problems, but I’d still be fighting for my partner and handling all the other desk order issues.

Recently, the guy everyone thought was part of the mob, the one who used to go after me all the time, died. His name was Jimmy Kaulentis. I got a call just a few hours after he passed. The only thing I could think of was what comes around goes around. They put him on the front page of Barron’s after he punched me three times in the face on the floor. You know what? It only made me stronger. More determined. They said he ran the Greek mob. They threatened to blow up my boat and told me not to be near any windows at my house that a can and gas might fly through. I knew what the mob looked like. I lived one mile away from Tony Accardo’s house, in the same neighborhood as my wife, whose dad ended up in a 50-gallon drum at the bottom of Lake Michigan and I went to school with his grandsons. https://en.wikipedia.org/wiki/Tony_Accardo

I guess what I’m trying to say is this: When you know you’re right, when you have an idea, don’t let anyone stand in your way. Don’t switch paths. Stay with it.

The ES traded up to 6144.50 on Globex, only 8.25 points off the contract high of 6152.75. I’m a buyer on a lower open, but if the ES gaps up, I suspect we could see some downward price action that I don’t think will last.

I don’t want to get ahead of myself, but 6176-6180, then 6200 and 6220, are on tap—just not today. We need some lower back-and-fill first.

MiM and Daily Recap

The E‐mini S&P 500 futures spent the overnight Globex session testing both sides of the prior settle at 6079.75. They briefly reached a 6090.25 high before dipping to a 6053.50 low and closing that session at 6083.50. Once the regular session got underway at 9:30 a.m.the ES climbed to an early high of 6089.00. This initial push quickly reversed, giving us a morning low of 6070.25 just six minutes later (9:36).

From there, buyers stepped in and drove the ES steadily upward, printing a mid‐morning high of 6113.75 at 10:42, a decent gain of 43.50 points (0.72%). After that peak, the market spent the late morning drifting lower, touching 6095.25 at noon, then bouncing again to 6108.25 by 12:45. Despite that attempt to extend higher, the contract slipped back to 6088.00 at 1:18 p.m., registering a slightly lower low compared to midday levels.

The real momentum came into play in the afternoon. From 1:18 onward, the ES marched higher, eventually reaching 6135.50 by 3:18 p.m. That move set the tone for the final stretch, with another push to 6138.00 around 3:57 p.m. for the session’s ultimate high. A modest pullback to 6130.75 followed shortly after (4:03 p.m.), but the market still settled firmly in positive territory. The full session closed at 6132.25—up 62.50 points (+1.03%) from the prior day’s settle.

Volume was respectable across the board, with the regular session trading over 1.18 million contracts, and total volume nearing 1.44 million for the day. Overall, it was a net‐positive session with a decent mission of gaining highs despite the background of turmoil. 

As for the Market on Close (MOC) imbalances, the MiM meter was skewed toward the sell side at ‐$282 million around 3:54 p.m. ET, reflecting a moderate net outflow. However, the ES did not appear overly fazed; although the index slipped briefly when the imbalance was first revealed, it quickly recovered and finished strong. This underscores the market’s overall bullish footing and inclination to shrug off modest negative imbalances.

How to read the MIM

Technical Edge

Fair Values for February 14, 2025

Daily Breadth Data 📊

Weekly Breadth Data 📈

Guest Posts:

Get instant access to our partners’ real-time market data and insights not available anywhere else. Here is last night’s Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

What’s Happening in the Market

The day opened at perfectly neutral market gamma. What tipped the scales was the price reaction to PPI, which in itself was a bit surprising given that it was 1 point cooler than previous but still 1 point hotter than expected. Ultimately, it is the price response to major events that we are trading.

Structurally and officially, the SPX Call Wall is at 6200. But tactically, TRACE reveals a large dealer-long-call position at 6100. We also know this to be at longer durations since it is visible with the 0DTE Net OI filter.

What also helped was thoroughly bullish charm today, and after a late bullish pivot from both calls and puts, the price was drawn up toward this overhead positive gamma level. And then drawing nearer, a new large dealer-long call position suddenly opened at 6120, which made the overall environment much more positive in gamma and it created a new price target for another leg up: SPY +1.06%, QQQ +1.44%, and IWM +1.11%.

Sometimes with TRACE it is about noticing new and material events as they happen. Keeping the 0DTE Net OI toggle on can help to spot some of these things, since those are usually the big volatile positions that the market suddenly must reconcile. If you go back through the day’s replay, this 6k+ dealer-positive call gamma suddenly appeared here at 3pm EST.

And as a minor but important observation here, S&P Equities is shown in the background with the purple line, and you can see it roll over in exhaustion after that first leg up.

Get instant access to our partners real-time market data and insights not available anywhere else. Here is last night Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

Good Reads:

Trading Room News:

Polaris Trading Group Summary – Thursday, February 13, 2025

DTG Room Preview – Friday, February 14, 2025

Calendars

Economic Calendar Today

This Week’s High Importance

Earnings:

Full Calendars

Affiliate Disclosure: This newsletter may contain affiliate links, which means we may earn a commission if you click through and make a purchase. This comes at no additional cost to you and helps us continue providing valuable content. We only recommend products or services we genuinely believe in. Thank you for your support!

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!!

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

Our View

Fun, fun, fun! The ES and NQ are back and filling, it’s the end of January, T+1, and they rotated into the Russell while the Trumpster is slapping 25% tariffs on all products coming from Mexico and Canada and AAPL reported beats with record revenue of $124.3B and $2.40 earnings. If you are looking for some quiet time, I hate to tell you, but you may as well take a cruise ship to the Bahamas, sit your ass down on a pool chair, and start ordering some cocktails because 2025 is going to be the year of market chaos.

I do my best to not pull anything from the internet. That doesn’t mean I don’t pull some yield prices or check where Bitcoin closed, but I don’t EVER, ever have the TV on. I don’t care what anyone from Bloomberg or CNBC has to say. In fact, when I was doing my videos from the CME floor, a guy from Bloomberg asked if I wanted to go on. My response was, “Notta!” If these guests were any good at trading their own accounts, they would not have time to do it. Just look at Jon and Pete Najarian… where the hell did they go?

Trading is never going to be simple, but when you get your own methodology and it works, stick with it. For me, less is better. Jim M, who has been in the MrTopStep room since 2010, loaded my charts up with indicators and signals last year, and some of them would call the high and the low, but my head would spin with all the other shit he put on the charts. It would take me a long time to learn, if ever, and I just went back to my old ways of buy and sell imbalance and overbought and oversold and stuck with the number one rule: the trend is your friend. If you are fighting that, then you’re probably struggling.

Like most of the week, the ES and NQ were in buy-the-dips and sell-the-rips mode, but later in the day, the ES and NQ were not far off the highs when the headlines hit, saying Trump had placed a 25% tariff on Canada and Mexico, the US’s two largest trading partners, and that he was deciding whether to tax their oil. The ES sold off 30 points, and the NQ dropped about 150 points in less than 5 minutes, and oil rallied but ended up closing near the highs of the range. The ES settled at 6093.25, up 25.75 points or +0.42%. The high in the NQ was 21,747.75 and settled at 21,808.75, up 85.50 points or +0.40%. The YM closed up 175 points or +0.39%, and the big winner, the RTY, closed up 21 points or +0.93%.

After Powell’s press conference following this week’s Fed meeting, the Fed chair did his best to avoid talking about the effects of Trump’s tariffs and what they could do to rates and the economy. Is Saturday Trump tariff day? Powell said, “There are just too many variables, so we’re just going to have to wait and see.” Trump has been playing a game of wait and see, but earlier in the week, White House press secretary Karoline Leavitt told reporters that Feb. 1 appeared to be “still on the books,” and Trump himself said those tariffs (oil) are coming on Saturday. Last week, Trump was threatening Colombia, and Colombia started threatening back, but the two nations came to an agreement. Trump is a deal maker and clearly is using the tariffs as a negotiating tool. The logic behind this round is tied to getting Canada and Mexico to clamp down on the flow of drugs and migrants at their borders and the US trade deficits with the two countries, but knowing Trump, there are other reasons. I have no idea how this is going to affect the US economy, but he has been very straightforward about what he wants. He also wants lower rates. I’m not smart enough to figure this out, but we already know how the markets reacted to the December rate cut, and now is not the time for that. My lean remains the same as yesterday, if there’s a lower open, buy it. If we don’t get one and get a gap higher, you can give it a shot but this rally is not over. 6180, 6193, 6204, and 6220 are some levels I am looking at. On the downside, I think any 30- to 40-point pullback would be a decent entry.

Our lean: The last trading day of January, PCE, and the options expiration are on tap. I think the higher lows have been working on the upside, and we could see higher prices, but I also think there is all sorts of headline risk, which buying into those drops has worked nicely. I can’t rule out some two-way flow, but 6150 and new all-time highs are not far off. Remember, the trend is your friend.

MiM and Daily Recap

The ES futures opened the Globex session at 6068.50 and initially moved lower, finding an early low at 6086.00 at 5:20 AM ET before bouncing to 6093.00 at 5:35 AM ET. A second dip followed, reaching 6087.00 at 6:00 AM ET before buyers took control and pushed the ES to a Globex high of 6094.75 at 6:15 AM ET. After some consolidation, the market pulled back again, hitting a pre-market low of 6074.25 at 7:15 AM ET.

The regular session opened at 6089.50 at 9:30 AM ET and saw an early rally to 6109.75 at 9:50 AM ET, marking the session’s first significant high. However, sellers quickly stepped in, leading to a sharp decline that bottomed out at 6056.50 at 11:10 AM ET, the lowest level of the session. From there, the ES rebounded sharply, rallying back to 6093.25 at 11:55 AM ET before rolling over again.

A secondary midday low formed at 6070.25 at 12:25 PM ET before another push higher sent the ES to 6102.75 at 2:10 PM ET. The market briefly pulled back to 6096.00 at 2:30 PM ET before staging an afternoon rally, hitting the session high of 6116.25 at 3:20 PM ET.  Around 3:40 PM Trump’s press secretary reminded the world that Trump tariffs were still on schedule to hit on February 2nd and that sent the market tumbling about 50 points in less than 5 minutes.   The Bulls did not take it lying down and rallied back 40 of the lost points in 15 minutes into the MIM  at 15:50 which showed almost $2B to sell, with a bullish symbol lean.  The ES showed resilience, closing the cash session at 6099.25, up 31 points from yesterday’s close, gaining 0.51% on the day.

In the end the ES and NQ were up, down and all around. In terms of the ES and NQ they were firm and seemed to be trying to back and fill. In terms of the ES’s overall trade volume was in line with the last two weeks at 1.57 million contracts traded.The yield on the 10-year note declined to 4.515% and Bitcoin settled at $105,092 up 1.26%.

How to read the MIM

Technical Edge

Fair Values for January 31, 2025

Daily Breadth Data 📊

Weekly Breadth Data 📈

Guest Posts:

Get instant access to our partners’ real-time market data and insights not available anywhere else. Here is last night’s Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

Futures are +50bps higher, pressing the SPX to 6,100.

AAPL is +3.8% to $246 after earnings.

Resistance: 6,120, 6,150, 6,200

Support: 6,050, 6,020, 6,000

With the SPX tagging 6,100 this AM, our sights set on 6,120 – 6,150 as the next major high. A move over 6,100 is significant, as it implies that longer term (and therefore more stable) positive gamma in invoked. You can see this in our base gamma curve below, wherein absolute positive gamma (supplied by total calls) peaks into 6,200. This, vs the transient 0DTE contracts that have been supplying the bulk of positive gamma.

To sum it up, this positioning likely leads to a decline in realized volatility, which further supports SPX prices. It also likely means that vol is actually going to decline, which we flagged yesterday as not having yet happened.

Our gut here is that we are about to enter into a “blow off” top.

Lets review:

“StarGate” led to an AI chase last week, and that bubble was violently popped by the DeepSeek news. However, we believe (and the evidence shows) that the violent drop on Monday was a function of the extreme overbought conditions into Friday (i.e. huge call buyers got stuffed hard + leveraged ETF unwind).

You can see on the bottom left Monday’s (1/27) nasty -16% decline in NVDA, and correlated ~3% drop in QQQ, followed by the sizable rebound on Tuesday (top right, 1/28). The argument here is that equities can “leave NVDA behind”.

The 1-year correlation between NVDA & QQQ is 74, as NVDA is a top 3 weight in the SPY/QQQ. Compare this to TSLA or AAPL, which have correlations near of 50. The idea is that NVDA can simply become part of the pack, as opposed to the leader.

On this point, now that the dust has settled, traders appear to be seeing DeepSeek as an “NVDA problem” and not a “market problem”. Plus, yields are very quiet after Powell, which is an “all clear” for short term buyers. With that, SPY & QQQ are within ear-shot of all time highs. The DeepSeek spasm did create a dip in non-NVDA stuff to buy, and so now we are seeing that buying translate into upside momentum.

Look at the 1-week performance of DIA & IWM, wherein NVDA & chips are not really a factor – DIA barely went negative on Monday.

This creates a “musical chairs” problem.

Shown here is COR1M – the CBOE correlation metric. It models the correlation between 1-month IV’s in the top 50 US stocks vs the SPX IV. When it declines sharply, we see it as a signal that bubble conditions are forming.

This was a huge point of discussion into July ’24, as NVDA and the chip sector freaked out to the upside. That led to this correlation metric breaking 2017 lows and setting the stage for the August VIX explosion.

As you can see, this correlation metric is back below 2017 lows. We reference 2017 as it contained the lowest realized volatility (RV) ever in the SPX of ~3.5% (1-month RV). Additionally, this COR1M metric never came close to those 2017 lows until July ’24.

Today’s 1-month RV at 14%, is much higher than 2017, but the fact that COR1M is lower (near record lows) given the higher RV (and recent market drop) is interesting. One would expect correlation to snap higher into a major selloff, but again, this is a rotation so correlation is instead plunging to lows.

The idea here is that these correlation lows are signal of bullish impulses – impulses that generally conclude with a sharp equity correction which results in all equities selling off, and correlation snapping higher. There is no set trigger for this to happen, and until it happens equities can rock higher (thus the “musical chairs” reference).

We quickly compared COR1M to the SPX (purple) below, and you can see that on approach of 2017 lows (black dotted line) the SPX seems to respond with a sharp drop. You can even see this happened at the start of Jan, when NVDA tagged 150 into the CES conference off the back of massive call trading.

The summary here is that we have our toe in the bullish waters, trying to ride the wave while aware that a bubble can be blowing. From our chair the near term catalysts are NVDA earnings + Feb OPEX, but we will also be weary of macro prints like NFP (2/7) or CPI (2/12).

Get instant access to our partners real-time market data and insights not available anywhere else. Here is last night Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

Trading Room News:

Polaris Trading Group Summary – Thursday, January 24, 2025

Market Overview & Early Session:

The overnight session hit both upside (6095-6105) and downside (6055-6045) targets with precision. A key pivot level at 6075 was identified as the “Line in the Sand,” aligning with the PTG Daily Trade Strategy.

For the bullish scenario, holding above 6075 targeted 6095-6105. For the bearish scenario, dropping below 6075 targeted 6055-6045.

Morning Trades & Execution:
Crude Oil (CL) OPR long trade successfully scaled two targets, and all upper targets were hit.

In ES and NQ action, early MATD rhythms were anticipated and played out. Buyers aggressively raised bids, pushing price action higher. The NQ rejected a key level (D-Level), leading to quick moves back down. An objective was fulfilled at 21,500 before price quickly reversed.

Midday Review & Lessons:
PTG David emphasized focusing on a single pattern and perfecting it for consistent success. The DTS plan unfolded flawlessly, with a retest of CD1 low (6054) before a sustained rally.

A dip below VAL (6064.50) and reclaim provided a PKB long structure opportunity.

Afternoon Volatility & Tape Bomb:
Market maintained MATD range day rhythms, with the best trades occurring at range extremes.

At 2 PM, the “Shake n Bake” move led to a bullish push into the final hour. The prior high at 6111.50 was tagged, setting up for a potential breakout.

At 3:38 PM, Trump announced 25% tariffs on Canada and Mexico, triggering a rapid sell-off. Markets plunged and then snapped back 25 handles just as fast.

A final reminder from PTG David: Always use hard stops—no such thing as a “mental stop.”

Closing Thoughts:
The session saw precise execution of strategy, with multiple opportunities in ES, NQ, and CL.

Key takeaway: Stick to high-probability setups and be prepared for sudden market-moving news.

The 2025 trading landscape remains volatile—fasten seatbelts and trade accordingly.

HAGEE. 🚀

DTG Room Preview – January 31, 2025

US stock indices closed higher on Thursday, digesting big tech earnings, though the session ended with some uncertainty after former President Trump hinted at a possible 25% tariff on Mexico and Canada. This pushed gold to record highs above $2,800/oz.

In tech news, it was revealed that DeepSeek used Nvidia’s H20 chips, designed specifically for China, raising concerns among US lawmakers who may impose new restrictions. Japan is also considering export controls on chips sold to China, which China’s Ministry of Commerce warned could harm business relations. Meanwhile, both Meta and Microsoft acknowledged DeepSeek’s efficiency improvements and said they could benefit from similar innovations.

OpenAI is reportedly in talks with SoftBank for a $40 billion funding round, which would value the AI giant at around $300 billion—double its valuation just months ago. OpenAI also plans to invest in Stargate, a $500 billion joint venture with Oracle and SoftBank that was recently announced by Trump.

Apple shares jumped over 3% after beating earnings expectations, despite lower iPhone sales and declining revenue from China. Several analysts had downgraded Apple before the report. The company plans to release new products, including an entry-level iPhone SE, new iPads, and MacBook Airs.

Premarket corporate earnings today include Chevron (CVX), ExxonMobil (XOM), Phillips 66 (PSX), ABBV, AON, BAH, BR, CHD, CL, BEN, LYB, NVS, RBC, RVTY, SNOW, and GWW.

On the economic front, key reports include the Core PCE Price Index, Employment Cost Index, and Personal Income & Spending at 8:30 AM ET, followed by the Chicago PMI at 9:45 AM ET. Fed Governor Michelle Bowman is also scheduled to speak at 8:30 AM ET.

Market volatility remains steady and elevated, with the ES 5-day average range at approximately 87 points. Whale bias is leaning bullish heading into the 8:30 AM ET economic releases, though overnight large trader volume has been relatively light. The ES continues to grind higher within both its short-term and intermediate-term uptrend channels.

Calendars

Economic Calendar Today

This Week’s High Importance

Earnings:

Full Calendars

Affiliate Disclosure: This newsletter may contain affiliate links, which means we may earn a commission if you click through and make a purchase. This comes at no additional cost to you and helps us continue providing valuable content. We only recommend products or services we genuinely believe in. Thank you for your support!

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!!