Market Review
The ES closed weak on Tuesday and traded down to 4323 on Globex before opening Wednesday’s regular session at 4351. From there, it traded up to the early high of 4357.25 at 9:44.
After the high, the ES dropped almost 40 points down to the low of the day at 4318.75 in about 30 minutes. After the ES rallied up to the 4338 area, it dropped down to 4330, made a double top at 4337.75, then dropped 11 points down to 4326.75. That’s when the buy programs started hitting, pushing the future all the way up to 4346.50 at 11:50.
In the afternoon, a Fed headline hit the tape saying the āProcess Of Tapering Could Commence With The Monthly Purchase Calendars Beginning In Either Mid-November Or Mid-December.ā
The ES pulled back down to 4350 and then pushed up to the high of the day at 4364.75. In the end, is it a ledge or a lift-off?
In terms of the ESās overall tone, it was firm but I am not sure how much of the rally was short covering vs. new buying. In terms of the ESās overall trade, total volume was 1.33 million.
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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.
Last Trading Day:
High: ~14:00 (FOMC Announcment)
Unsure, best guess 15:30 – 16:00 33% (wrong)
Low: ~10:10
12:00 – 15:30 >90% (wrong)
Today:
High:
10:00 – 12:00 ~50% (not sure)
Low:
09:30 – 10:00 15%
12:00 – 15:30 80%
Chart of the Day
Consumer sentiment is seen falling short for U.S. stocks
U.S. households lack the kind of confidence that usually goes along with higher stock prices, according to Morgan Stanley Wealth Management. The firm drew the conclusion in a report Monday after comparing 12-month changes in the Conference Boardās consumer confidence index and the S&P 500 Index. āIf consumer sentiment doesnāt quickly improve, it could be a signal of market weaknessā as people choose to spend less and save more, the firm wrote.
Our View
Short and sweet. I am looking to get long today, hopefully during some late-day weakness. Despite inflation at its highest rate in over a decade and prices up 5.4% in September, the ES snapped a three-day losing streak. I think this has to do with a few things:
1) The 14th is generally mid-month rebalance day
2) Everyone is off base/short
3) The Ned Davis S&P cash study shows today being up 22/down 15 of the last 37 occasions and the October options expiration has been up 21 / down 16 of the last 37 occasions and the Nasdaq has been up 23/down 14 of the last 37.Ā
I think the combination will make for a nice rip.
Our lean, I sold the early rally after yesterday’s open and made 18 points. When the ES is in a downtrend, selling the gap ups has been a very profitable trade. That said, you have two options. You can sell the early rallies and buy the pullbacks or just be patient and wait for the ES to fall and find a good spot to get long.
Danny Riley is a 39-year veteran of the CMEĀ trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
Tecnical Corner
Keep an eye on the 50-day moving average for the ES. This measure was solid support and a great dip-buying opportunity for most of this year.
That setup failed in September, although the ES did a great job of hammering out a low just below 4300 and leaning on the September low as support. Now we need to see how the ES reacts to the 50-day from the underside.
If the 50-day acts as resistance and canāt be reclaimed, we could have a change in tune with the index, leaving the September low vulnerable.
Instead, I want to see if the ES can go weekly-up over 4421.50 and contend with the 50-day. An eventual move over the 50-day could put 4500 in play.
As we all know, thereās 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 āBig Moneyā is placing its bets can give our trading room a big wave to ride ā or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
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