Market Review
I’m not sure what most readers like, the play-by-play of the day’s trade or an overview? I suspect the latter but I’ll do a mix of both.
The ES was trading around 4310 Thursday night and all of a sudden the futures started to sell off. Around 3:00 am the ES traded down to 4260 and started to short cover before Friday’s regular session, trading all the way up to the 4320 level and opening at 4314.75. The ES up-ticked to 4321.25 at 9:33 and then sold off all the way down to 4277 just before 11:00.
What do you know, they sold the opening rally. What else is new?
After the low and with some encouragement from MrTopStep — IMPRO: Dboy (10:31:56 AM): I know this sounds nuts but I think we see a 40 handle rally — the ES traded up to 4326, up 49 points from my original post.
After the high, the ES traded down to 4312.50 and then made a few lower highs from the 4325.25 level to the 4322 level. Another buy program hit the ES around 1:10 that pushed the ES up to a new high at 4328.75 at 1:12. After a small pullback, the ES got hit by another buy program that caused a big buy stop run up to 4344 at 1:50, up 84 points from the Globex low.
Around 3:30, the ES printed its high of the day at 4365.50 as the MIM was showing $960 million to buy. After the high print, the ES started pulling back. As the final MIM showed $3.6 billion to buy, it made a low at 4340.25 at 3:55. The ES traded back up to the 4372.50 area, dropped to 4346.50, and settled at 4350.75, up 52.25 points or +1.22% on the day.
In the end, the rally didn’t occur out of thin air. The ES sold off sharply on Wednesday and Thursday, then dropped down to 4260 on Globex, rallied then sold off again to a higher low after the open. Accounts that hold over the weekend put in stops and after all the selling power was used up, the same algorithmic trading systems that ran your sell stops start running the buy stops. Money gets put to work on the first trading days of the quarter and boom, up it goes.
In terms of the ES’s overall tone, it was very firm after the early weakness. Money moved back into stocks on the first trading day of the quarter, but let’s see if that happens again today. In terms of the day’s overall trade, 2.22 million futures traded. For the week, the S&P lost 2.2%, and the Nasdaq fell 3.2%, their largest drops since the week ended Feb. 26, 2021. The Dow lost 1.4%, its largest drop since the week ended Sept. 10.
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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: ~15:15
10:00 – 12:00 >90% (wrong)
Low: ~10:20
12:00 – 15:30 >90% (wrong)
Today:
High:
12:00 – 15:30 70%
Low:
12:00 – 15:30 80%
Chart of the Day
Our View
You can’t make this stuff up. The ES is moving 80 to 100 points a day. It’s a godsend if you’re on the right side and it’s a torture chamber when you’re not. On Friday the VIX traded down to $20.64 and settled at $21.15. It didn’t act that weak when you consider the size of the rally. You can say what you like, but the final MiMs all week were both powerful and directional.
Our lean: I think this is a hit-and-run market. Meaning if you get a good profit, take it. I still think the S&P will rally, but we are only one trading session into October. There are still several roadblocks such as the worsening supply chain and the Fed’s taper talk. That said, I firmly believe there will be a solid low this month. If the ES gaps lower, our lean would be to buy the open for an early scalp. If that trade works, get out and get a good look at the price action. Right now it’s a two-way street and should be traded that 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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