***Written 8 pm Tuesday evening for Wednesday’s trading
Tuesday’s Session wasCycle Day 1 (CD1): Most of the session was of the moderately choppy variety, as it was an “inside-inside” value type day. Price did eventually decline to the projected CD1 Average Decline Target (3772) before rallying back fulfilling Average Rally Target (3792.75). Range was 38.75 handles on 1.195M contracts exchanged.
…Transition from Cycle Day 1 to Cycle Day 2
This leads us intoCycle Day 2 (CD2): Part of this cycle’s rally is in place, so expectation is for potentially more consolidation activity before breaking out directionally. There are two estimated scenarios to consider for today’s trading.
From yesterday, the rising cases have dropped by 4 (yay) but falling daily cases have stayed the same (boo). Washington state has moved from falling to rising while Oregon is now in the falling category. Data is still very sensitive recovering from the data holidays.
Wear your masks! Stay at least 10 feet behind someone wearing a mask! (Particularly in a checkout line) Stay home! Take your Vitamin D!
Chart of The Day
(ESH20:CME) GLOBEX Session
(ESH20:CME) Day Session
Opening Print: 3793.00
Total Volume 1.9 M
S&P 500 Futures Recap – Trade Date January 12, 2021
RTY To New Highs While ES/NQ/YM Close Sideways
After trading in a 20.75 handle overnight range, the S&P 500 futures opened Tuesday’s cash session at 3793.00, traded down to an early morning low of 3781.50 at 8:45 and then rallied up to a 3803.25 daily high just after 10:00. From there, the S&Ps would reverse and sell-off down to the daily low of 3768.00 around 12:30. The futures would get a lift from there rallying to a lower afternoon high of 3799.50 late in the day before settling at 3793.25 up 1.25 handles on a total volume of 1.9 million. In terms of price action, it was all about buying the early morning low and selling the late morning high.
Ready The Next Leg Up
While there have been some sell-offs in the #ES and #NQ the last few days the weaker price action is tied to a big buy of Russell2000 and sell the Nasdaq, Dow and S&P rotation. That’s really how it works now. Rebalances are no longer about stocks and bonds, they are about what sectors to buy and what sectors to sell. There used to be a mutual fund called the “bull/bear’ fund where you could be bullish on stocks and flip to bearish but the current rotations are very sector orientated. Clearly, non-stop rotations are part of the new world trading order and are not going away. It’s something every trader needs to pay attention too, especially when you have so much over-investment in companies like FAANG.
I have learned a lot from the PitBull and continue to learn from him. His stock research is some of the best in the world. Had I bought the stocks on his list late March 2020 I literally could retire. The PitBull said yesterday that stocks ‘tend to go up in January and sell-off in February’. I agree with that but I also think it’s important to remember that ‘the trend is your friend’ and in an environment of zero borrow cost and ‘unlimited’ government stimulus it’s imperative to remain focused on the upside. The PitBull also warned about next week and the security risk tied to Biden being sworn in next Wednesday. To protect against any security threat the US military will have a larger footprint in the nation’s capital by this weekend than the total number of troops in Afghanistan and Iraq combined. That will include over 10.000 U.S. troops. I don’t think I have ever seen anything like that.
Our view, it has been a two-way trade but the #ES isn’t really ‘breaking’ and it’s 10:30 PM and the #ES is trading 3803. The way I read the price action is the ES and NQ are stuck in a big back and fill pattern and setting the stage for the next leg up. Is the S&P overextended? Yes, it is, but there is a ton of money still pouring into stocks and that is why the markets bend but don’t really sell off much. Our lean is for higher prices. You can sell the early rally and buy the pullback or just be patient, follow the trend, and buy the dips.
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.
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