on October 2, 2024

One day in and October already is a challenge

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Our View

Remember when Iran said they would pick the time and place of their choosing? Well, that came in the form of over 200 rockets. Look, I can’t explain the feeling I get when I think about what will happen if a major US military ship was attacked and sunk. I really get the feeling this is a big trap to keep the US spread out around the globe going into a very fragile US presidential election. And like I said yesterday, 45,000 East and West Coast dock workers shut down. I am sure they will figure it out, but when? In a few days? A few weeks? A month? I highly doubt it will go that long, but it’s another disrupter that can cause massive shortages if not settled quickly.

Our Lean

One of the things I laid off was trying to predict when Iran would fire back. I should have been more on top of the Middle East risk than I was. What happened yesterday was a great example of how things can go from 0 to 100 mph in a few minutes. It also shows how quickly sentiment can change and how volatility can jump. The VIX, which made an early low at 16.61, rallied up to 20.73 and settled at 19.26, up 15.12% on the day.

This morning, we will get a look at the ADP employment number, and there are four Fed speakers from 9:00 to 12:15. Our lean: there are 33 days and 22 sessions to the election and 24 trading sessions. I think we are going into a period where we will see a big uptick in both US and global news, everything from rate cuts to war. The markets never like uncertainty, and a war and loss of life are negative for stocks and cannot be overlooked. If a wider war does break out, the ES and NQ will struggle to hold a bid.

I think we can bounce, but we are just into the second trading day of October, and things got spooky fast. I think if we open sharply lower, I would have to give it a shot and buy the open or the first drop under the lower open. If the ES gaps higher, I would look to sell it, but I need a good gap up, and I also want to get a look at the ES overnight inventory.

I have to be honest, I think things are going to continue to be volatile and even experience violent price action. I am not saying today or tomorrow, but like I said last month, I think all you would have to do is yell “fire,” and the markets would tumble. Am I bearish? Not really, but when the headline picks up like this and you have all this Fed speak and the jobs number on the fourth session of the new quarter, it all spells fireworks to me.

MrTopStep Levels:

MiM and Daily Recap

I want to point out that I lost my data before the open and finally got the charts and platform up after 3:00. So my highs and lows will be off a little, but it will still give you the flavor of the day.

The ES traded up to 5822.50 on Globex, traded down to the 5800.00 level, and opened Tuesday’s regular session at 5811.00. After the open, the ES traded 5809.50 and then sold off 76.5 points down to 5733 at 10:29 after this headline hit the tape:

SENIOR WHITE HOUSE OFFICIAL TELLS ME: THE UNITED STATES HAS INDICATIONS THAT IRAN IS PREPARING TO IMMINENTLY LAUNCH A BALLISTIC MISSILE ATTACK AGAINST ISRAEL

The ES rallied back up to the 5770 area at 12:11, sold off 32.5 points down to a higher low at the 5737.50 area, and then rallied 45.5 points up to the 5783 level at 2:32. It sold off down to the 5771 area at 3:15 and dropped down to 5764 at 3:35, traded up to the 5770 level at 3:40, started going offered and traded 5763.50 as the 3:50 cash imbalance showed $20??? million to buy, and traded 5759.75 on the 4:00 cash close. After 4:00, the ES traded down to the 5757 area and settled at 5765.25, down 49 points or -0.84%. The NQ settled at 19,993.00, down 268.25 points or -1.32%.

In the end, it was a tape bomb kinda day. In terms of the ES and NQ’s overall tone, it wasn’t pretty after the headlines hit, but the ES and NQ had a nice bounce and drifted back down after 4:00. In terms of the ES’s overall trade, they cranked the volume up to 1.855 million contracts traded.

Technical Edge

NYSE Breadth: 45% Upside Volume
Nasdaq Breadth: 38% Upside Volume
Advance/Decline: 35% Advance
VIX: ~19.53

Guest Posts: David Dube – Polaris Trading Group

The prior session marked a pivotal Cycle Day 3, where early optimism in the pre-RTH rally was quickly overshadowed by intensifying global tensions. A ballistic missile barrage on Israel significantly escalated the Middle East conflict, sending Crude Oil soaring and triggering a swift reversal in market sentiment.

The session’s Line in the Sand (LIS) at 5800 proved crucial, as price plowed through this level, signaling the onset of a “hard sell-down.” The aggressive downward pressure fulfilled the lower target at the 5730 zone, as outlined in the Daily Trade Strategy 10.1.24. This sharp breakdown punctuated the session’s bearish tone, closing out the day with a firm rejection of prior support zones. Range was 89 handles on 1.854M contracts exchanged.

Key Takeaways:

Middle East conflict escalates, driving Crude Oil higher.
LIS 5800 breached, leading to aggressive sell-off.
Breakdown target at 5730 achieved, reinforcing bearish sentiment.

As the market transitions to the next cycle, all eyes are on key support levels and potential geopolitical developments, which continue to shape near-term volatility.

For a more detailed recap of prior trading session click on this link: Trading Room RECAP 10.1.24

…Transition from Cycle Day 3 to Cycle Day 1

The transition to Cycle Day 1 saw an average decline to 5733, achieved during the prior session’s “sell-down.” All eyes will be on how the market responds to the continuing geopolitical tensions. We will mark the 5760 level as today’s Line in the Sand (LIS) as a potential for a “relief rally” should overseas tensions subside; otherwise, a continuation of liquidation may unfold.

Our discipline of maintaining positioning that is aligned with market forces continues to serve us well, so stay the course.

Scenarios to Consider for Today’s Trading:

Bull Scenario: Price sustains a bid above 5760, initially targeting the 5780 – 5785 zone.
Bear Scenario: Price sustains an offer below 5760, initially targeting the 5745 – 5740 zone.

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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.