Tuesday’s Session was Cycle Day 1 (CD1): Price rebound approximately three-fourths of previous failed cycle, fulfilling this cycle’s objective (4385). Range was 66.50 handles on 1.909M 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 stabilization of recent wide range given the elevated volatility. Well-defined 5-day value zone between 4393 – 4305 with key point of control marked at 4348.50 As such, estimated scenarios to consider for today’s trading.
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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: ~09:48 12:00 – 15:30 >80% (wrong)
Low: ~10:53 09:30 – 10:00 >80% (wrong)
Baxter missed both time slots yesterday. Interesting to note both high and low came in AM session.
High: 09:30 – 10:00 55% 10:00 – 12:00 25%
Low: 12:00 – 15:30 ~70%
What do the percentages mean? Baxter is a classification model trained to identify a coarse shape of price action. When the high or low is likely to occur. He can guess for four time frames correctly more than 66% of the time. The way classification programs work is a weighted value for each time frame is generated from our input data. When Baxter is sure he will produce a clear signal > 80%. If he cannot determine from the current input and past inputs, those weights get spread around. The guess is always the largest value no matter how close, but knowing that there is confusion might have some trading value.
Chart of the Day
S&P 500 retreat brings potential for real-yield reversal
Monday’s slide in U.S. stocks may help reset a historical tie between earnings and inflation that has been out of whack for months. The relationship is based on the S&P 500 Index’s earnings yield and the annual rate of change in the U.S. consumer-price index. While the yield is typically higher, the opposite has been true since April, according to monthly data compiled by Bloomberg. Real yields for the last four months were about minus 1.6% — the lowest level since 1980 and half a percentage point away from another low, set in 1974.
Some days it feels like we’re out there trading with a bunch of other traders — millions of us spread out and making the market. Other days it feels like you’re dodging traffic on the interstate, trying not to get run over by the next algorithm tearing through the ES. Like playing Frogger.
That’s what yesterday felt like.
After a late-day rally saved the ES from a truly brutal finish on Monday, it looked like the bulls finally had some momentum on Tuesday.
The ES rallied more than 50 handles from Monday’s low before the 4:00 p.m. close. Then it rallied another 52 handles overnight, topping out at 4395.75 in the 4:30 a.m. window. We opened at 4371.25 on Tuesday, down about 25 points from that overnight high.
After an early high of 4385, we traded down to a low of 4336.50 and bounced. From there, every time it looked like the bulls were about to rally hard, the sellers stepped in and capped the gains. We had two major lower highs in the day — showing that the bears still had some power — while 4366 was pretty stiff resistance.
Sentiment really waned as the ES went out near the lows, closing the 4:00 window at 4342.75 and finishing the 5:00 window at 4336.25.
In terms of the overall tone, bulls started off good but failed to hold onto that momentum through the day. In terms of the day’s overall trade, 1.91 million contracts traded hands. That’s decent volume, but for a day like this, we would have expected more.
The bulls had a nice overnight rip and failed to carry that momentum through to the regular-hours session. That’s not too surprising, but it is disappointing, as the ES technically ended the day down 5 points or 0.11%.
That’s its 10th decline in the past 12 sessions.
Later today we have existing home sales and crude oil inventories. But this is all about the Fed, which will release its statement at 2:00 p.m. this afternoon. Powell & Co. will have to reassure investors about their tapering plans.
Our lean: It’s basically “Algo Hour” after the Fed releases its statement. Look for them to run the stops, breaking the highs or the lows of the day (or both) before reassessing the direction. We had an inside day on Tuesday, with a range between 4329.25 and a high of 4395.75. The ES cracked the low overnight. Now let’s see if we can break the range again sometime today.
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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