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!
Four trades today. Yesterday was a great day for levels, that is if you took them? The first level gave you a quick 10-point run. The second level gave you a quick 10-point run back. Most of the stronger S&P500 Securities opened gap up and held. By 12:22 price had drifted down to the third level of 4340 and found a bid. Price rallied up to the fourth level of 4361 and started to sell-off. Total for day 42 points.
Market Timing: This day is really just looking at the last hour and see how it compared to the first hour. Not a strong story for the bulls as the last hour pulled back into the first hour.
Weekly: Price has rallied on slightly increased volume compared to the previous up week and tested the high of last week.
Daily: Price extent and volume have decreased from the previous day, as repeated the past two days. This indicates some selling pressure may be entering into the fray. Volume was low, 700K low. Lower than the previous day. Globex does not care about that. Probed three new all-time highs on three pushes up.
Technical Position: After the open, price drifted down to test the 4345 handle twice (I had that level). And then failed to gain a following as a failed upthrust out of the previous day trading range traded back into the previous day’s range. After a 110-minute drift down, price found a new low and a bid. Price got oversold and rallied up to print a new high of day in the last hour.
Volume was light. Indicating bulls were unable to get a following of activity at these highs to take price higher. I saw program sell trades going off at the highs. Potential fall through ice on Jul-19, rally back up Jul-21 referenced to the potential range of distribution from Jul-2 through Jul-13.
Looking Forward to Friday, July 23, 2021
GLOBEX: After the close, price probed the 4371 and drifted down to 4367, and found a bid. Probed again up to 4374 and held a higher low of 4368 handle. The last probe was just a tick away from the 4375 handle. And now a higher high as I write, 4376 and climbing.
Trade Plan: It’s a Friday and a Kewippie day! That means if price can hold a bid there is potential for high of day in the last hour or last print. Bull will look to get long around the 10:00 to 11:00 hour. Perhaps it could go lower down to the PEON close. If price is going to take another leg up, this would be the place Sardine and Tuna/Billfish traders would time their play.
POTUS does not seem to be meeting his production goal for vaxxed up. The market is grinding up to all-time highs on little to no volume. My concern is, “If we are going to lock down the country this fall, it would make sense for the market to ratchet to all-time highs, wouldn’t it?”
I saw big size coming in on the sell-side at 2:00 pm, 2:30 pm, and 3:00 pm in the market leaders. Perhaps they are just taking a little off. We could see that big 4400 even soon perhaps next week or today.
It’s summertime trade. The delta variant now seems to be overshadowed by corporate earnings.
Offing Events: The debt ceiling is looking to be raised on the sly by the end of July and 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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No Baxter today. New model next week.
Chart of the Day
Global stock-market leadership comes back in the U.S.A.
U.S. stocks regained a leadership position in world markets as second-quarter results began arriving. The ratio between the S&P 500 Index and an S&P Global gauge of shares listed outside the U.S. shows as much. After falling as much as 10.4% between September and February, the ratio rallied to a record on July 9 and again on Tuesday, according to data compiled by Bloomberg. The non-U.S. gauge is the S&P Global Ex-U.S. Broad Market Index, which tracks developed and emerging markets.
S&P 500 — Another Day And Another RIP
I have to ask, is this the craziest rally you have ever seen? I can’t speak for you, but in all my years of following the markets, there is nothing comparable.
During last Friday’s drop then the big dump on Monday, the S&P 500 futures (ES) sold off 128 points in two days. With Thursday’s close, the ES is now up three days in a row and up 135.50 handles from Monday’s low. From Monday’s Globex high, we’re less than 20 points from ES 4400.
I am not going to do all the ups and downs — we all know what happened. In the MrTopStep chat, I told everyone that the ES would sell off and it did. My view in the premium section was pretty spot on also: Sell the early rallies and buy the dip.
I don’t like dogging the short sellers and I understand that the markets should sell off, but why fight the trend? Why fight the Fed?
It just doesn’t work unless you are willing to cover when the S&P actually goes down — you have to be willing to take profits. If not, you end up fighting the machines and we all know how that ends up! After the shorts pump up the volume and the selling dries up, the very same algos that knocked the ES down go on to run all the stops on the upside.
In some respects, this is very similar to what I saw at my desk operation when I did all the S&P index program trading for UBS. But back then I could move the S&P up and down, as the S&P never moved as much as it does today. Back then a 20 or 30 point move was huge, now the ES rallies 120 to 150 points in 3 days.
I know you are reading this and saying, “What’s Danny thinking saying ‘he could move the S&P up and down?’”
Well, I did. When Moore Capital or one of the other big hedge funds called up to sell 500 to 1,500 lots, I had both sides of the trade. In one ear was Steve Lau from UBS and in the other was Joe G from Moore. If I was selling and the ES was at 1.00 under fair value, Steve would give me bids and I would sell those bids with the orders from the hedge fund. But those days are gone, there is no pit, and the program trading I used to do that made up 60% or 70% of the volume has been run over by high frequency (HFT) trading and algorithmic programs.
The PitBull despised program trading, but he wanted to know and when he called up when the markets were going up or down he would say “You doing programs?” and I would say yes and he would literally hang up the phone on me. At one point he was going to take out a million-dollar ad in the Wall Street Journal condemning the practice and told me many times that program trading would one day “ruin the S&P like they did the XMI.” And you know what? He was right!
Today algorithmic and high-frequency trading makes up 85% to 90% of the volume. Did HFT ruin the markets? I think it did and I don’t go for the idea that they create liquidity, I just don’t buy it. I think the exchanges sold the customers out. They don’t care if the retail loses because it’s such a small segment of the business. The moral of this story is that in order to survive you have to risk a lot more and be able to hold longer. They used to say that only 5% of futures traders make money, I think it’s less than that today.
I think we see higher prices but like yesterday, if the futures gap up I would look to sell the early rallies and buy the pullbacks. If the ES does start going up, it may be a good idea to take some profits before the imbalance. ES 4400 is on TAP.
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