Market Review
It seems like it doesn’t matter what the bad circumstance is, the S&P always fades the news. I worked hard on yesterday’s Opening Print and it all comes down to one thing, DON’T FADE THE FED!
We were right that the potential negative developments — what we called “turning points” — were piling up. And in the first part of the day, that was panning out as stocks tumbled out of the gate. Then we had a V-shaped bounce into the close, sending the S&P 500 to new all-time highs…again.
The ES opened yesterday’s regular session at 4449.00, ticked up two points then sold off down to 4432.50, down 27 points from Friday’s close. After the low, the ES back-and-filled at the 4435 to 4438 area, and then in came the buy program.
Going into 11:00, the ES traded up to the 4440 area and then made a sequence of higher highs. At 12:24, the ES traded 4450.50, pulled back a few points, traded 4454.23 at 2:06 then shot up to the 4464 level at 2:06. After another small pullback, the ES traded up to 4467.75 going into 3:00.
The ES traded 4468 on the 3:50 cash imbalance as the MiM showed $2.7 billion to buy, traded 4475 on the 4:00 cash close, and printed up to 4476.50 just after 4:00. On the 5:00 futures close the ES settled at 4472.00, up 12.25 points or +0.27% on the day.
In the end, the bears did get to eat but they only got an early breakfast. In terms of the ES’s overall tone, the selling dried up after 10:30 and the bulls took over. In terms of the day’s overall trade, total volume was LOW at 1.176 million contracts traded.
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Baxter:
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Chart of the Day
Financials rebuild bond-yield ties in taking S&P 500 lead
Financials displaced energy last week as the S&P 500’s best year-to-date performer among its 11 main industry groups. Along the way, financial stocks reestablished ties to bond yields that had been frayed. The 20-day correlation between the S&P 500 Financial Index and the yield on 10-year Treasury notes ended last week at 0.80, its highest reading since June 2020, according to data compiled by Bloomberg. Correlations were negative during May and June and bottomed out at the lowest level since September 2016. The financial index climbed 30.6% for the year through Friday, beating energy’s 29.7% gain.
Our View:
You fall off the beaten track, you pay the price, and that’s what happened to me yesterday. One of my problems is that I think too much. I saw the ES ‘back and fill’ and pointed it out. What did I do? I added to my short.
Here is the link to the Ned Davis S&P case study for the week of August options expiration. As you can see, Monday’s stats were bullish, up 26 vs. down 11 of the last 37 occasions, and today’s stats are flat, up 19 vs. down 18 of the last 37 occasions.
Wednesday and Thursday are both more positive, up 22 vs. down 15 of the last 37 occasions, and Friday’s stats show up 19 vs. down 18 of the last 37 occasions.
Our Lean: How could any of us have known the ES was going to trade 4476? It really goes to show that you have to expect the unexpected. Maybe yesterday the market overreacted, but either way, the ES may ultimately be headed to 4500 or higher.
Today’s lean is to sell the early rallies if they’re there and buy the pullbacks.
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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.
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