Tuesday’s Session was Cycle Day 3 (CD3): This day was referenced as a “wild-card” as cycle objectives had been fulfilled, opening the scenario for a decline unfolding, and it did in fine fashion. Range was 65 handles on 1.963M contracts exchanged.
…Transition from Cycle Day 3 to Cycle Day 1
This leads us into Cycle Day 1 (CD1): Average CD1 Decline (4136) was fulfilled during the prior session’s decline, leaving today’s question as to retest of HVE (4120) or continuation of the late-day rally to 4157 CD1 Range Objective. As such, estimated scenarios to consider for today’s trading.
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Chart of the Day
Looking for Payouts? BTIG Points to U.S. Consumer Staples
Food, beverage, tobacco and household-product makers have fallen so far behind the rest of the S&P 500 that their dividends have appeal, according to Julian Emanuel, head of equity and derivatives strategy at BTIG LLC. Emanuel compared dividend yields on the S&P 500 Consumer Staples Index and the S&P 500 in a report Sunday. The yield gap between the industry group and the U.S. equity benchmark closed last week at 1.4 percentage points, about 0.1 point from a record set March 1. Consumer-staples stocks gained 42% as a group from the S&P 500’s March 2020 low through Friday. The S&P 500 rose 87%.
S&P 500 Futures Recap – Trade Date May 4, 2021
Tech Stocks, Janet Yellen Comments Shake the Bond Market, Nasdaq Down 2%
The S&P and Nasdaq have been overdue for a pullback and that’s exactly what happened yesterday. After a weak performance in the overnight session, the ES traded 4164.75 on the 9:30 ET futures open, initially rallied up to 4170.25, and at 11:57 traded 4120.50. After the low, the ES ground higher but sold off 10 points just after 3:30 and traded 4155.00 after the 3:50 imbalance showed $625 million to buy. On the 4:00 cash close, the ES traded 4162.50 and settled at 4156.00 on the 4:15 futures close, down 27.50 points or -0.66%. The Nasdaq futures (NQM21:CME) fell almost 400 points from its Globex high of 13777.50 to its low at 13380.75 and closed down 265.50 points or 2% on the day. In terms of the ES’s overall tone it was again held captive by the NQ but in the end, it firmed up. In terms of the day’s overall trade, volume was big, 280,000 ES traded on Globex and 1.68 million traded on the day session making the daily total 1.96 million contracts traded. The Nasdaq (NQM21:CME) made an overnight high at 13,792.50 and dropped 411.75 points down to 13,380.75, off 508.75 points from its contract high of 13,888.00.
The weakness was a combination of bonds selling off, Treasury Secretary Janet Yellen’s comments that the Fed may need to raise rates earlier to keep the economy from overheating, and declines in shares of semiconductor companies. Some well-known money managers are saying the brightening prospects for the economy and for businesses’ profits have already been baked into stocks’ valuations and that the markets have already priced in the recovery. Look, the ES made its 666 low back in March of 2009 and has basically rallied for 12 years. I do not buy into the idea that the markets have accounted for all the trillions in liquidity. Am I surprised that the ES sold off? Not at all, I have been writing for the last few days that the S&P was being held hostage to the Nasdaq and that’s exactly what’s going on. The VIX got down to 16.09 on April 16 and margin debt is at a record. So, no, I am not surprised. The S&P was up over 20% since Mr. Biden was elected and closed up 5.4% in April.
Our view, this is a game of screw everybody. The algos were clearly running sell programs during yesterday’s decline but after the low, the algos flipped sides and started buying. Let’s face it, shakeouts are part of the game and you have to be a patient bull. There is a lot of negative talk out there. I understand stocks are overvalued but it all comes down to one thing; no place to go but stocks and the massive liquidity provided by the government and the Fed. Our lean, we can’t rule out more weakness but yesterday’s late-day price action was bullish. Sell the early rallies and buy weakness.
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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