Market Review
Disclaimer: For educational use only. I’m not dispensing financial advice. We are having an intellectual conversation (you and I) on the topic of trading the Emin futures using the Lens of Wyckoff Principles and the Eyes of WB’s clock. The clock that controls all turns intraday, every day!
The day was IFFY and J Powell and news was on tap. The first level 4345 was spot on as I saw a 1,200 lot hit the tape. I had the 4345 level as a potential inflection point. If you got on board, you could have printed a quick 4, 8 points or held on longer for a 10 or 12 point run. As price started to hold up at the 10:20 marker, other S&P500 securities were cutting and turning south.
Market Timing: The day was iffy either S2L or S2H. The opening drive down on the opening balance indicated it might flip to S2H. As price lost its extent, a 20-minute potential base of distribution formed. Price moved down then back up to a lower low. As the lunch low printed a lot at 1:55 that confirmed it was a bearish S2H day.
Weekly: Unable to take or probe the high of the previous four days. Now looking to probe lows.
Daily: Probed down to find the halfway of Jul-9 and found a bid at the lows.
Technical Position: Drive down gave late bulls inventory but they were unable to take out the opening print with certainty. I saw large program trades hit the tape with large size hitting the bid on the opening print. Price traded in a 10 handle range until 12:50 marker. A 30 minute down move was followed with a 45 minute up move unable to regain the 4360 gave away to selling pressure. 70 minutes later a new low of day was printed.
Looking Forward to Friday, July 16, 2021
GLOBEX: Currently we are working off a long-term supply line formed at the High of Jul-14 and Jul-15. Overnight price has rallied to test this supply line. Currently, price is respecting the supply line.
Trade Plan: If bears take out the current low of 4338 you could see a test probe down to 4300. If the bulls can hold the 4338 you could see a probe up to Tuesdays and Mondays high around 4370 up to 4380 handle.
Offing Events: The debt ceiling is looking to be raised on the sly by end of July time is running out. Will the market accept this excess spending? A variant of the virus is on the rise. I’ve heard delta and now Lamba. The country is coming undone at the seams. September / October may just be the catalyst for the truth to be revealed.
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Baxter: Expecting a range tight day.
Baxter continues to run bullish, looking for new highs. Today it is calling for a flat close with a tight 12-point range.
Chart of the Day
BofA, Citi, JPMorgan results bring another hit for shares:
Now that the four biggest U.S. banks by market value have put out second-quarter results, shareholders might be more than ready to move on. Bank of America Corp. dropped for the seventh straight quarter on the day of a report, according to data compiled by Bloomberg. Citigroup Inc. declined for the sixth quarter in a row and JPMorgan Chase & Co. recorded a fourth consecutive loss. While Wells Fargo & Co. rose after its results for the second quarter in a row, the shares had fallen five straight times before then.
Our View
Powell’s Inflation And Economy Comments ‘Spook’ The S&P
If you asked me the one thing that can reverse the stock market, I would have to say comments by the Federal Reserve Chairman Jerome Powell. After positive comments earlier in the week, Powell hit reverse.
Testifying before the Senate Banking Committee, Powell said, “inflation will likely remain elevated in the coming months.” The S&P futures and the Nasdaq 100 futures were weak on Globex, with the ES trading down to 4345.25. The weakness in the (NQU21:CME) was the weak link early on.
The ES traded 4353.25 on the 9:30 a.m. futures open, made a high of 4360.75 in the opening hour, and when Powell’s comments hit the tape, several large sell programs hit the index markets. That pushed the ES down to its daily low of 4332.25 at 2:00 p.m.
Just when everyone was thinking that the rally was toast, the market gave us a nice bounce. You have to watch those lows at 2:00 p.m. on a Thursday. The ES and NQ had a nice short-cover rally, pushing the ES up 21.50 handles to 4354.
The ES traded 4349.00 as the 3:50 cash imbalance showed $650 million to buy and traded 4353.50 on the 4:00 cash close. The ES settled at 4352 on the 5:00 futures close, down 15.75 points or 0.36% on the day. The NQ futures closed down 104.25 points or 0.70%.
In the end, the markets were overbought, overextended, and ripe for a decline. The Fed and Covid-19 case surge didn’t help matters, spooking investors and giving them a reason to lighten up on their longs.
In terms of the ES and NQ’s overall tone, they were weak but not overly weak. In terms of the day’s overall ES volume, it was around the same level as it was on Wednesday, around 1.2 million.
Our View
I didn’t call it well yesterday, but I want to point out a few things I said earlier in the week. The first part was that ES 4400 would not come as easy as 4300. The second part is I was very clear that I expected a few down days this week. Not to mention, both the ES and the NQ were fairly responsive off the 10-day moving averages, which we pointed out yesterday. (The chart is updated below to reflect that).
That said, I did recover a chunk of Tuesday’s losses. So where are we? It’s been a very choppy week and I don’t expect today to be any different. We all know the Ned Davis S&P cash study for the July expiration is a statistically negative day, but it also showed every day this week with the exception of Friday as being positive. That all said, there were a lot of options rolled down yesterday and hedges put on. The question today is, will the market recover, or do we see more selling going into the weekend?
My guess is we see a little of both.
I also stated that the ES would get weak around the 15th when earnings started hitting and admittedly I pushed it out a little further, but the original idea was correct.
My advice is simple: Do not take on a lot of risks right now.
Sure the July options expiration will push the markets around, but it’s the headlines that are moving the markets right now. The other thing is the NQ keeps taking stabs at the 15,000 level and my guess is at some point it’s going to go flying through that level.
Our lean is to buy the early pullbacks with tight stops. If I am right and the ES and NQ do move up, I am going to try and hold a small long for a late-day push.
The ES dipped down and held the 10-day moving average and we’re seeing a bounce off that level again on Friday’s Globex session. A break of Thursday’s range is what traders are looking for now.
Specifically, a breakout over the high at 4370.25 could put the contract highs near 4385 in play and put 4400 on deck for the SPX. A break of Thursday’s low at 4332.50 leaves the ES vulnerable to a bigger dip, potentially down to the 4295 to 4300 area.
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
