More Than a Dead-Cat Bounce? We’ll Find Out Today
The S&P was due for a rally.
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Our View
I could ask Sidd or Trader Dave what happened yesterday — two Mr. Top Step traders from the chat — but I know it well enough to explain it in my own terms. Everyone was short and there was a big (0DTE) options expiration today where millions of options were bought and sold.
A few months ago there was an article in the Wall Street Journal about Goldman Sachs complaining about the zero days to expiration (0DTE) options and the late-day volatility it causes.
Some of you know about the 0DTE and some don’t. If you don’t know, it’s a trading necessity that you learn about it and yesterday was just one of the examples. Even if you’re not going to trade them, it’s worth knowing about them. Here is a link to Investopedia’s Zero Days to Expiration (0DTE) Options and How They Work.
Am I surprised at how much the ES rallied? Not really because it’s all programs, and when you have millions of options to roll or futures to buy while people are off-base and big open interest at ES 4300, it was like someone lit the wick. Plus, in Our Lean I said I was looking for an oversold bounce yesterday, even if the selloff isn’t over.
Remember, these are not our father’s markets or charts, and nor will they ever be.
Our Lean
As I have said many times before, I will never be perfect. So what will I be? A good set of eyes and ears for the S&P.
We all knew August was going to be bad and that September would be too, but what about October? I call it the bear killer. I am not saying the selloff is over, but the ES has sold off just over 400 points from its late-July high as the S&P nears a possible 10% correction.
Was yesterday’s rally just a dead-cat bounce? We will see today. If you looked at HandelStats stats from yesterday, the odds were just above 50/50 favoring the upside, but today’s stats are clearly bearish (up 3, down 12 of the last 15 occasions).
The question is, did yesterday’s rally change the trend? I don’t know, we could go higher but I think 4345-4350 could be a problem and even if they do rally, I still think the mutual funds will run out of buying power going into 12:00 ET Friday, and that’s when we could see some selling tied to the “end of the quarter walk away” trade.
Remember, the bonds/TLT made new lows yesterday. As long as the bonds are weak, the rallies should be limited. Oh yeah, and oil prices finally clipped my $94 level as crude remains strong.
Our Lean: If the ES is higher, my lean would be to sell the early rallies and see how the futures act. The problem is only a small portion of the shorts covered yesterday, now we have to see if there are more.
Some levels for today: Hourly close above 4331.75 targets 4343.38. A close above there targets 1 sd at 4356.48. An hourly close above 4364 targets 4382 then 2 sd 4392.70.
Downside: Hourly close below 4311 targets 4300.50, then -1 sd at 4284, then 4270.25. Hourly close below there targets -2 sd 4247.80.
As a trader I have but one mission: To get in and get out and not to fall in love with my positions.
MiM and Daily Recap
ES recap 15-min
The ES traded up to 4336.50 on Globex and opened Wednesday’s regular session at 4325.50. After the open, the ES traded up to 4331.75, sold off down to 4321.25, rallied up to a lower high by 1 tick at 4331.50, and then sold off down to a 4313.25 double bottom at 10:18. After the low, the ES rallied back up to the VWAP at 4325.25 then sold off down to 4304.75 at 11:00, up-ticked and back-and-filled until 11:36 and then dropped down to 4292.25 at 12:24. From there, it stutter-stepped up to 4303.50 at 12:50 and then dropped down to a new low at 4277 at 1:43, rallied up to 4287.75 at 2:06, had one last drop to the 4280.50 at 2:15 and then rallied all the way up to 4330 at 3:13 — that’s a 53.25 point rip in less than an hour.
After the surge, the ES dropped 27.25 points down to 4300 and traded 4305.75 as the 3:50 cash imbalance showed $357 million to sell and traded 4214.50 on the 4:00 cash close. After 4:00, the ES traded up to 4323.50 and settled at 4321.75 on the 5:00 futures close, up 2.25 points or 0.04% on the day.
In the end, one of MrTopStep’s most sacred trading rules is that “it takes days and weeks to push the S&P down and only one day to bring it back.” In terms of the ES’s overall tone, I would say it improved. In terms of the ES’s overall trade volume was high: 261k traded on Globex and 1.63 million traded on the day session for a total of 1.891 million contracts traded.
MIM up just once in the last 10 days
Technical Edge
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NYSE Breadth: 55% Upside Volume
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Nasdaq Breadth: 57% Upside Volume
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Advance/Decline: 53% Advance
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VIX: ~$18.25
ES
Remember Rich Miller’s levels today as laid out in the Lean. Below are a few more.
ES Daily
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Upside Levels: 4336, 4345-4350, 4385-4390
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Downside levels: 4300, 4290, 4275-77
CL
Oil tagged $94 yesterday. Under some pressure overnight, but the bull trend remains intact.
CL Daily
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Upside Levels: $92.50, $94, $98
Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.
** = previously mentioned trade setup we are stalking.
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JPM — Many are long from $143-145. This is a longer term swing. Trimmed $153s, then $157.50+ on 7/24.
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Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+
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If worried about a larger correction, can sell/trim north of $150. Below entry and no need to stick around in JPM.
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XOM — Long from the monthly-up area at $108.50 — Trimmed ¼ at $112.50+ and ¼ at $115+. Now we have another ¼ peeled off at ~$118. If we see ~$120, can consider a final exit or hold for a longer-term swing. Up to you.
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Break-even or better stops
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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!
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