OP: Why Did the S&P Rally So Much on Friday?

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Why Did The S&P Rally So Much Late Friday?

There are hundreds of market timing subscriptions you can buy, some are good but most are bad. The problem with taking the advice of one of these subscriptions is that most preach the “gloom and doom” side of things. 

Look at Bob Prechter, he’s been calling for corrections, declines and crashes for over 40 years and most people say he never makes money, yet he sells millions of dollars in subscriptions. Some of this stuff did work many years ago, but that was before “smart money” and algorithmic trading began making up over 85% of the volume. As I have said many times; these are not our fathers’ markets or charts.

So, why did the S&P 500 rally so much late Friday? There are a number of reasons and to tell the truth, you won’t find the reasons in your charts.

1. Fridays have become the new ‘Mutual Fund Monday.’ 
2. Volume early in the day was light and there were all sorts of buy stops in the ESM21.
3. The week 4 options expiration.
4. They say there is no T+3 anymore but there is a T+2. That said, there is no doubt that there was a mammoth ETF buy program. They may not call it T+3, but there is absolutely nothing wrong with marking up winning stock positions and the end of the quarter.
5. The VIX fell under $19 down to $18.68.
6. The late spike in the futures forced the short call and long put positions to roll higher or buy futures.

I am sure there were other forces at work and maybe you can list a few. Either way, it was a perfect storm to the upside and new all-time contract highs. 

I have always known that the most important two hours of the day are the first and the last. I knew this because those are the hours that the UBS S&P index arbitration directing would be its busiest. It’s also an optimal time for the guys with the better seats to take the most advantage of their buy and sell orders on the close. 

Moral of the story: When so many forces are at work at once it becomes extremely easy to manipulate the S&P. 

Our view: I nailed Friday’s view. Sell the early rallies and buy the pullbacks, and if the ES is on its highs at 2:30 ET, look for a NHOTC (new high on the close). The other part was @realtraderdave was on fire in the MrTopStep chat warning traders not to short, as he was looking for a big late day rip. 

That trade helped a lot of traders in our chat. While I still think the ES is going up, so does everyone else. Our lean, sell the early rallies and buy the pullbacks, but keep a close eye on the NQ. 13,070 is a very big level and if it fails there, the ES may go for the ride, too. Remember, the S&P “never” does what everyone wants it to do when they want it.

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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