Market Review
S&P 500 Recap – Trade Date May 28, 2021
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Chart of the Day
Our View
Mixed May, Historically Weak June Ahead
MrTopStep has a trading rule that says ‘The S&P never does what most people want it to do when they want it to do’ and that was how the first part of Friday’s trade started. After a big rip on the close Thursday, the ES traded up to 4217.50 on Globex Thursday night, pulled back and retested the high at 4217.25 at 7:03 am and opened Friday’s regular session at 4212.57. After the open, the ES traded up to 4214.00 and at 10:27 traded down to the low of the day at 4202.50. The ES slowly ground higher and traded up to 4215.50 around 12:45 and then traded back down to 4207.50 going into 2:30. The only thing that stood out was the total lack of volume, at 2:45 ET only 525,000 ESM21 traded. For the next 45 minutes, the ES traded in a 4-point range. The ES traded 4211 on the 3:50 reveal as the imbalance flipped from buy $90 million to sell $1.6 billion and at 3:59:59 the ES dropped 10 points down to 4201.00. On the 4:00 cash close, the ES traded 4204 and settled at 4204 on the 4:15 futures close, down 7.25 points or -0.17% on the day. The Nasdaq futures (NQM21:CME) settled at 13,693.00, up 0.25 points on the day. In terms of the SP’s overall tone, it traded weakly and looked like it was part of the end-of-the-month rebalance. In terms of the ES’s overall trade, volume was low at 980,000.
Our View: The constant rebalancing and rotations have gotten to a fever pitch. Money moves into one index one day and then out of it the next. There are even mini rotations that occur intraday. The money is not being pulled out of the stock market, it’s just being sloshed around between the Rusell 200, the Dow, S&P, and Nasdaq. Our lean, the stats for the first trading day of June are positive but recently the beginning of the week has been weak. Sell the early rallies and buy the pullbacks and keep an eye out for possible late-day tech weakness.
I want to add that over my many years of running my S&P 500 futures desk, June always stuck out as a weak month. I did not get my 4235-4340 last week but this is not over. I know the ES ‘acts’ weak and I was trying to stay off an NHOTC on Friday because 1) there was a lot of buying done last Wednesday and Thursday, 2) Everyone was long, 3) the ES acted weak while the NQ was going up and, 4) we have a trading rule that’s called “the End of the Month Walk Away’ trade. This happens on the last trading day of the month when all the buying is used up early in the day and the mutual funds/ETFs don’t have anything left to buy. Does this affect the trend? No, I do not think so. Little pullbacks are generally positive and after all the MIM selling on the close late last week, there is a very good possibility some of that money gets put back to work. In most cases, the funds put money back to work on the first few days of the new month.
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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