Market Review

Topic: Taylor 3 Day Cycle

Author: David D Dube (PTGDavid)

Website: Polaris Trading Group

Tuesday’s Session was Cycle Day 3 (CD3): Price fulfilled its 3 Day Cycle Statistic by trading above 4451 level which was our Line-in-the-Sand (LIS), converting to resistance. Price subsequently sold down to 4412, which was our stated trading room target. “PTGDavid :(12:48:04 PM) :Targeting Lower 12’s….PTGDavid :(12:59:59 PM) : BOOM! 12’s”.  A rally back from 12’s settled price at 4437.50. The range was 60.50 handles on 1.754M contracts exchanged. Market on Close Buy $2.7B capped the session.

 …Transition from Cycle Day 3 to Cycle Day 1

This leads us into Cycle Day 1 (CD1): Normal expectation for CD1 is for a decline averaging 4429.50. The market has been trading back and forth within the 5-day value zone between 4431 – 4456. As such, estimated scenarios to consider for today’s trading:

1.) Price sustains a bid above 4430, initially targets 4445 – 4450 zone. 

2.) Price sustains an offer below 4430, initially targets 4420 – 4410 zone.

*****3 Day Cycle has a 91% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history.

For more detailed information for both bullish and bearish projected targets, please visit: PTG 3 Day Cycle and/or reference the Cycle Spreadsheet below:

Link to access full Cycle Spreadsheet  > >Cycle Day 1 (CD1)

Thanks for reading,

PTGDavid


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Chart of the Day

Gains for U.S. growth, value stocks come unusually close

Chart by David Wilson – Bloomberg Radio

Faster-growing U.S. companies and relatively cheap stocks are exhibiting a “neck and neck effect” for a change, according to John Stoltzfus, Oppenheimer & Co.’s chief market strategist. He compared the year-to-date performance of the Russell 1000 growth and value indexes in a report Monday. The percentage gap between them has been as narrow as 0.1 point this month, according to data compiled by Bloomberg. Stoltzfus wrote that he expects the indexes to track each other for a while. They haven’t posted similar annual gains since 2014 — and last year, growth came out ahead by a record 37 points.


Our View:

S&P 500: “Always A Head Fake”

One of the things about trading the S&P (ES) and the NASDAQ (NQ) futures is that there is always a head fake. I wanted to be short on Monday and I knew when I did that, all the reasons I gave were right. However, I have a very hard time holding a futures position that is 20 or 30 points against me. Why? Because you know that position could quickly end up down 50 or 60 points!

After exploding up to 4476 on Monday, the ES sold off on Globex Monday night and opened Tuesday’s regular session at 4443.75, down almost 31 points. The ES traded down to the 4440 area at 9:36 and then rallied up to the 4451.50 level at 9:48. From there, it dropped down to 4436.25 at 10:00. 

There was a lot of back-and-forth action in the first 30 minutes. 

The ES stutter-stepped back up to a new daily high at 4453.50 just before 11:00 and then started to reverse as the NQ began falling. The key area on the downside was 4430. Once it gave way, the ES did a big downside ‘stop run’ all the way down to 4411.75 just after 2:00. 

I tried to buy the NQ a few times near the lows but got out quickly before eventually catching  the short-covering rally. I also told the MTS chat room I thought the ES could trade back up to the 4424 level and that’s exactly what it did, but the downside momentum was too strong and the futures started heading south again. 

The ES dropped 10.5 points down to 4414, giving us a higher low at 1:50. Then BOOM, a buy program pushed the futures up to 4432.75 at 2:20 and then gradually pulled back to 4421.50 (another higher low). 

At 3:30, the ES traded 4435 as the MIM showed $412 million to buy, then jumped even more up to 4442 just after the 3:50 cash imbalance showed $2.7 billion to buy. The ES traded 4440 on the 4:00 cash close and settled lower by 36.5 points on the day, or down 0.82%, its biggest decline in four weeks. 

In the end, it’s all about our term “water in the bathtub” — push the water one way then push it the other way. 

In terms of the ES’s overall tone, it was weak, but the day was filled with running the stops in both directions. In terms of the day’s overall trade, volume was on the high side at 1.75 million futures traded, that’s up about 1 million contracts from last week when volume was under 800,000. 

Our View: The ES and NQ acted bad but does that mean they are going to crash? I don’t think so. With the ES up so much it’s not out of the realm we see lower prices, but as I have always said: you can get one down day, you can maybe get two down days in a row, but three down days in a row are hard to come by and this Friday is the August options expiration, which may set up a bullish scenario. 

A Bloomberg story from yesterday pointed out that the S&P’s worst dips happen in the middle of the month, which coincides with monthly options expiration. This is usually followed by new highs. Despite these blips, the S&P 500 has not experienced a major correction since election season and has not had a 5% decline in almost a year.

Our Lean: We are not here to fight city hall. If the markets are going down, we want to go for the ride but my question is, how long will the ride last? I knew going into yesterday’s trade that it could get rough. However, at 4440 the ES is only 36 points off it’s all time high. 

Or lean is to sell the early rallies and buy the pullbacks. If that doesn’t work today, I think it will on Thursday. Remember the late-Wednesday or Thursday bottom, before a strong finish. 

Bubble Trouble

Lastly, as I said earlier, it’s not out of the realm for a larger pullback at some point and according to Morgan Stanley, some tech valuations are reaching levels comparable to past bubbles. Morgan Stanley’s Lisa Shalett said a few days ago that the odds of a 15% stock market correction are rising. Take that for what it’s worth. 

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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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