Market Review
Taylor 3 Day Cycle
Author: David D Dube (a.k.a. PTGDavid)
Tuesday’s Session was Cycle Day 1 (CD1): Decline was very shallow as range and volumes continue to be well below normal levels as summertime trade is firmly entrenched. Range was a meager 19.25 handles on 722k contracts exchanged.
…Transition from Cycle Day 1 to Cycle Day 2
This leads us into Cycle Day 2 (CD2): Normal for CD2 is for consolidation and “back and fill” action, but strangely this is what has been happening daily. As such, we will continue to anticipate the same for the remainder of this week ahead of the fast-approaching long July 4th holiday weekend. Estimated scenarios to consider for today’s trading:
1.) Price sustains a bid above 4270, initially targets 4290 – 4300 zone.
2.) Price sustains an offer below 4270, initially targets 4260 – 4248 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 2 (CD2)
Thank you for reading,
PTGDavid
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Chart of the Day
Looking outside S&P 500 shows strength
Broad-based strength is returning to U.S. stocks, according to Strategas Research Partners LLC. The firm cited the ratio between the S&P Completion Index and the S&P 500 in a Twitter post Friday. Companies in the completion index are part of S&P Global’s most all-inclusive U.S. benchmark, the Total Market Index, and aren’t also components of the S&P 500. The ratio rose 5% through Monday after a three-month slide to this year’s low, set on May 13, according to data compiled by Bloomberg. Both the completion index and the S&P 500 closed at records Thursday and Friday.
Our View
S&P and Nasdaq Up 6 Out Of The Last 7 Sessions, S&P Makes 33rd Record Close
As I said in the MrTopStep chat; summer for the stock market started in May.
Historically, the S&P slows in the summer when people sell stocks to go on vacation, but this year is different. It’s the reopening of the economy after Covid-19 lockdowns and there is a record level of people in the US traveling and vacationing. This has caused a giant drop in volume.
The S&P 500 futures have closed higher 6 out of the last 7 days. The S&P futures used to be the CME’s big volume getter, but it’s literally ‘drying up’ as more people take time off.
It’s 3:55 ET, just before the 4:00 cash close, and the ES pretty much did the same thing it did yesterday and the same thing it’s been doing for the last three weeks: It rallied early and slowly sold off.
On the 9:30 ET futures open the ES traded 4284.75, traded up to a 4389.00 double-top high at 9:45 and pulled back to the 4285 area — roughly where it opened. Then it ran some buy stops up to the high of the day of 4291 at 10:40.
After that, it was a ‘stutter step’ lower. The ES dropped down to the low of the day just before 3:00 pm as the MIM showed over $750 million to sell. The next move was a low-volume grind higher. The ES traded 4282.00 as the 3:50 cash imbalance showed $490 million to sell, traded 4281.50 on the 4:00 cash close, and settled at 4285.50 on the new 5:00 futures close, up 3 points or 0.07% on the day.
In the end, it started out slow and remained slow all day. In terms of the ES’s overall tone, it was down-ticking as the Nasdaq was up-ticking but still managed to close on another record high.
In terms of the ES’s overall trade, it’s almost shocking; 144,000 traded on Globex and 581,000 traded on the day session for a grand total of 725,000 total contracts. That’s right, the high and MIGHTY S&P 500 futures (ESU21:CME) is printing historically low volume. The higher it goes the lower the volume.
End Of The 2nd Quarter Equity Rebalance
There could be as much as $316 billion in total rebalancing as the second quarter draws to an end. The quantities are historically large but there are no guarantees when it comes to quarter-end rebalancing and the “offsets” from such rebalancing flows are difficult to quantify and qualify.
Mutual -$107BN
- Mutual -$107BN
- Defined Pension -$110BN
- Norges Bank -$65BN (could be -$22BN)
- GPIF -$34BN
That’s from JPMorgan. BofA added their outlook, which said: “…predicting a total of $88.5BN rebalancing out of equities and into U.S. fixed income, a number which BofA finds historically significant vs. standard deviation of quarterly equity rebalancing flows over the last three years at c.$67BN.”
Let’s just be prepared for the potential of some big moves later this afternoon. Don’t forget, this is where our MiM and chat room can be a huge help.
Our View
The VIX closed up 1.65% yesterday. Is that important? Yes, and when you throw in the ES’s low volume I think there is reason to be concerned. Will it cause a big sell off? No, but I do think there is downside risk. The S&P 500 posted 36 new 52-week highs and no new lows and the Nasdaq Composite recorded 85 new highs and 31 new lows.
This is crazy stuff and I am not sure what’s going to stop it, but maybe today we see some end of the 2nd quarter rebalancing. One would think with stocks up so much this month, the rotation would be out of stocks and into bonds. More than likely though, it will be some intraday indexing, like sell the NQ and buy the RTY. I am doing my best to get as much info as I can but this is what I know so far:
Our lean: The ES and NQ dipped in Globex but are about flat as of 7:30 am ET. Today there will definitely be two-way flow. Keep an eye on the bonds and the stock rotations. My guess is we see higher prices in the first part of the day, some type of pullback, and then we have to wait until the last 45 minutes to see what the guys with the better seats are up to. While the end of December rebalance saw a big melt-up, I don’t think we see that but with volumes so low nothing can be ruled out. Expect the unexpected!
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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