Market Review
After closing up 41 points on Friday, the S&P 500 futures (ESU21:CME) traded up to 4534.50 on Monday. The ES opened at 4513.25, traded up to 4516.50, pulled back down to 4510.50 going into 10:00, and then exploded higher on the upside, trading 4534.50 just 27 minutes later. It took a little while, but it finally followed the Nasdaq higher.
The ES down-ticked to the 4527 area and then ‘back and filled’ from 4527.50 to 4534.50 from 11:32 to till the close. In other words, it was an eventful first few hours and not an eventful afternoon until the close.
The ES traded 4529.50 at 3:33 as the MIM showed $375 million to sell and increased to $670 million to sell. The ES traded 4527.25 as the 3:50 cash imbalance showed $1.27 billion to sell, traded 4525.75 on the 4:00 futures close, and settled at 4525.25 on the 5:00 futures close, up 22.5 points or +0.50% on the day.
In the end, who would have known that the ES traded down to the 2174 area back on March 23, 2020, and rallied almost 2,400 points in 17 months? That is a gain of 140 points per month. How is that possible? People talk about the 2000 tech bubble all the time, but this is much bigger. In terms of the ES’s overall tone, both the ES and NQ futures were firm. In terms of the day’s overall trade, total volume was LOW with 798,000 futures traded.
I know today’s Opening Print is small but I don’t think we need to point out every little dip and rip. More important is the total lack of volume. The PitBull continues to say that he understands my term ‘thin to win’ but he also says low volume and narrow breadth rallies sometimes don’t end well. I guess that’s yet to be seen.
Economic Calendar
Closing Prices
In the TradeChat Room
Market On Close: $1.2B to sell 15:50, only $410M left at 15:55
Some end of the month cleaning and re-balancing going into September.
Check out all the Market Closing action in our daily post
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Baxter
Baxter is our new AI trading helper. This data is early, new, and not very well tested but we want to share some of our findings. We are concentrating on the SP500 which should benefit ES futures and SPY traders.
Yesterday:
…low call, Baxter is 60% convinced that it will come in the AM session and just marginally favoring the first 30 minutes. For the high, there is a confidence level of only 52% that it will be after 12:00 and he picked the 12:00 to 15:30 window as the most likely time frame.
Baxter gets a two out of two for his picks yesterday with the low of the day coming in just after the open at 9:42 and a slight higher high hitting around 14:15.
Today:
For the day’s highs, Baxter continues to slightly like post-noon highs and that noon to 15:30 slot but it is marginal and those numbers are converging to flip the high into the AM session. But for today, it is another noon to 15:30 call for the high.
For the low, he also wants to call that slightly in favor of the first 30 minutes by 33% over the other 3 slots and 60% for an AM low.
Chart of the Day
Pre-pandemic dividends are seen coming back in U.S. first
U.S. companies are seen as more likely to restore dividends to pre-pandemic levels than those based elsewhere, according to Nicholas Colas, co-founder of DataTrek Research LLC. Colas made the point in a report Friday that compared current dividend yields on iShares exchange-traded funds with 2019 yields. The gap for iShares’ Core S&P 500 ETF was 8%, based on data he cited. ETFs tied to MSCI international-stock indexes had bigger spreads. The widest belonged to iShares’ MSCI Emerging Markets ETF at 60% — a gap that “rightly represents the reduced earnings power from Chinese companies,” Colas wrote.
Our View
Store-Bought Rally
It was only 32 trading days ago (7/19/21) that the ES traded down to 4251.20. That’s a gain of 283.3 points. And if you go back to June 6/18/21 — 50 sessions ago — when the ES traded down to 4166.50 the futures have rallied 368 points.
On a tighter view, on 8/18/21 the ES traded down to 4400.25 and since then the ES has rallied 134.25 points in just 9 sessions. I don’t know what to say other than… SHAZAM!
The big institutions, ETF, and mutual funds have made trillions riding the coattails of the government’s stimulus and quantitative easing programs, and why not? It’s worked since the first round of QE began in March of 2009. From the March 2009 credit crisis low at 666, the S&P 500 is up almost 600% and shows no sign of buckling.
The word “sell” has become a dangerous one! No one knows for sure how long the ES will continue to rally, but the fact that there have been no 5% drops since October of 2020 means it’s probably best to just keep one mindset: Buy the dips.
As I have said many times, I have been part of every major correction dating back to 1983 and there is absolutely nothing to compare to the current rally. Crazy? Yes. Worth fighting? Not at all!
It’s 9:30 PM and the ES is trading 4527, right where it closed. As I have always said, we are not here to fight city hall and if the ES is going up, we want to go for the ride. Yesterday the ES RIPPED through my 4520 level like it was nothing and it’s now targeting 4550. How high is high? I don’t know, my end-of-the-year call for the ES was 4600 and there are 4 months left in the year. Based on the stats I put in above, who’s to say the ES can’t go to 4900 or even 5000?
Our Lean: It’s better to be wrong buying the dips than trying to sell the rallies. As futures traders we like looking at both sides of the trade, but with the ES doing less than 800,000 contracts a day on the up-days, who really wants to fight it?
You can sell the higher open or early rallies and buy the pullbacks, but just remember, the trend is your friend, and buying the pullbacks works a hell of a lot better. Does that mean we won’t see any 30, 50, or 100 point pullbacks? No, but they will be bought.
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
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