Market Review
The ES traded up to 4378.75 on Globex and then sold off down to 4352.75 at 9:24 and opened Wednesday’s regular session at 4358. People used to say it’s better to trade the night session and clearly the increased volatility has made for some big moves recently.
After the open, the ES traded up to 4363 at 9:45, sold off down to 4346, and rallied up to 4375.50, up almost 30 points off the low at 10:03. After pulling back and making a few lower highs, the ES sold back down to the 4361 area at 10:36 and then rallied up to a new high of 4376.50.
In its normal fashion, the futures sold off 32 points down to 4344 at 1:42. The next move was another 30+ handle rally back to 4375.50 at 2:47. The ES traded in a 4 to 6-point range for the next 30 minutes as the early MIM showed over $1 billion to sell. I noticed some sell imbalance off the 4372 area and not long after, the futures sold off down to 4355.50 at 3:47.
On the 3:50 cash imbalance, the ES traded 4354.00 as the MIM showed $2.2 billion to sell. The ES traded 4350.50 on the 4:00 cash close and settled at 4356.50 on the 5:00 futures close.
In the end, the ES and NQ did bounce back but it didn’t happen without another big round of sell programs and bounces — rips and dips. In terms of the ES’s overall tone, it acted firmer but still has the feeling that another downside run isn’t out of the question. In terms of the ES’s overall trade, volume was lower than Wednesday, with 1.77 million contracts changing hands.
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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: ~10:45 (2nd near high ~14:45)
12:00 – 15:30 40% (wrong)
15:30 – 16:00 58% (wrong)
Low: ~13:40
12:00 – 15:30 >90% (right)
Today:
High:
10:00 – 12:00 87%
Low:
12:00 – 15:30 60% (12% open, 10% close)
Chart of the Day
September delivers record futility for S&P 500 utilities
This month has been a September to forget for investors in U.S. electric, gas and water suppliers. The S&P 500 Utilities Index has dropped every day since Sept. 9, a period of 14 trading days through Tuesday, and has fallen 8.4% along the way. The losing streak is the longest since calculations of the utility-stock gauge started in 1989, according to data compiled by Bloomberg. It’s also twice as long as any other series of losses this year among the S&P 500 Index’s 10 other main industry groups. Technology stocks had a seven-day decline that ended in May.
Our View
When you think of selling in and out, “flow” is the data most people follow. According to Bank of America’s figures, investors pulled $1.2 billion out of tech mutual funds and ETFs during the week ending Sept. 22, the first outflow in about three months, and $29 billion out from U.S. stock funds that week. That was the largest outflow in more than 3½ years, halting the stretch of consistent inflows.
Morgan Stanley had to buy a put spread collar for an 18 billion fund they run. Usually, the market trades through the short call strike so they would buy back the call along with putting on the collar. This time the short call has expired at zero — 35k 4430 calls. Whoever takes the other side of the trade today will have to sell futures to hedge theoretically. Morgan sold thousands of ES futures late in the day as part of the hedge.
That all said, I believe the weakness is tied to the Fed’s taper talk and the higher yields of the 10 year.
Our View
Today is the last trading day of the third quarter and according to Jeff Hirsch from the Stock Trader’s Almanac, the last trading day of September (or the third quarter) has been down 16 of the last 23 occasions, but also had a massive 5.4% rally in 2008. The first trading day of October is DJIA’s third weakest of all monthly first trading days over the last 22 years. I know people are looking for some upside relief, but every rally is still being sold. It’s very hard to get overly bullish when the price action is so pronounced.
Our lean, this is all about trading the 30 to 40-handle range and which side it will break out from. If you sell in the low 4340s you get run over and if you buy above 4370-4375 you get faced. That all said, buy stops have been building up above 4373.50 all the way up to 4390-93. It’s been a rough week but I think today could see a few upside stop runs. However, we also can’t rule out a few good dips along the way.
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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