Market Review
The ES traded down to 4370.00 on Globex Thursday night and opened Friday’s regular session at 4384.00 and went straight up to 4405 by 10:09 and then dropped back down to 4385.25 at 11:59. After the low, the ES ‘back and filled’ and rallied 10 handles up to 4395.25, dropped back down to 4390.00, and then rallied up to the 4396.00 level. The ES then got hit by a sell program that pushed the futures back down to 4382.25 at 2:41. At 3:15, the ES popped back up to 4393.50 and then sold off down to 4385.50 as the MiM started showing over $1 billion to sell. The ES then retested the 4382 area, pulled back a bit, and traded 4386.00 as the 3:50 cash imbalance came out at $2.1 billion to sell. The ES traded 44391 on the 4:00 cash close, traded up to 43950 at 4:09, and settled at 4395.25, down 1.75 points or -0.04%. The NQ settled at 14,966.50, up 56.75 points or +0.38%.
In the end, all the hype about a big sell-off did not happen as most of the selling was done on Thursday and on Globex. In terms of the ES’s overall tone, it had a lot of rips and dips but the firmer tone of the NQ seemed to hold the ES together. In terms of the day’s overall trade, 312,000 ES traded on Globex and 1.032 million futures traded for a grand total of 1.344 million contracts traded.
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The big question going forward is will the negative historical stats work against the backdrop of trillions of dollars in stimulus and quantitative easing? My guess is the record level of stimulus will continue to support the markets as it’s done for the last 12 years but that doesn’t mean there won’t be some big drops in the weeks and months ahead. The PitBull continues to say ‘there is always a 10% correction’. The continued spread of the delta variant across the U.S. and mask mandates coming back will cause a slowing of the economy. It could be a one-two punch. It was only a few months ago that JPMorgan and Goldman Sachs were saying if you wanted to continue to work for the firms you needed to return to the office, you don’t hear any of that now do you?
With the S&P up about 100% since the March 2020 lows, we ‘could’ be entering a period of risk-off. Someone that has the new Delta variant can infect 2 to 3 times more people than the original Covid-19 virus. Last December when caseloads hit their high there were around 200,000 cases a day. As you will recall back then investors were derisking. I do not know how far the S&P will fall but I highly doubt it will be 30% like in March of 2020.
The stats were bad last Friday but all the selling power was used up during Thursday’s day session and Thursday night’s Globex session and then the ES went straight up after Friday’s 9:30 futures open. As I have said many times, picking tops is one of the hardest trades you can make, especially when the S&P is seeing its largest rally in 3 years and is up 6 months in a row. For what it’s worth, the Nasdaq is up 6 out of the last 8 months.
Today, the first trading day of August has the Dow down 15 of the last 23 occasions and the first 9 trading days of the month are historically weak making August the worst month for the Dow from 1988 to 2018. It’s really not ‘if the markets are going to sell off’, it’s ‘when?’ Will they go straight down this week? I think the sellers have a good chance but I’m not sure about today. No matter what trades you make you have to keep the first and last trading day of the month in your trading toolbox. So far 59% of the S&P have reported and 88% of those companies have beat expectations.
Our lean, sell the early rallies and buy the pullbacks, keeping in mind the first 9 days of August are usually weak.
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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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