Market Review
I’m not going to do a big play-by-play of yesterday’s trade. This was all about the Fed and the projections the group is giving in regards to its accommodative and dovish stance. Changes to that stance are going to create ripples in the stock market — that’s just the way it is.
The ES traded higher on Globex early Tuesday night and then sold off again in the morning. The ES opened at 4432.75, sold off a few points shortly after the open, then traded up to 4449.75 at 10:21.
After the high, the ES sold off down to 4432 at 1:30 — back toward where it opened — then rallied up to 4445.50. Not long after the Fed taper talk hit the headlines, the ES sold off all the way down to 4420.25, a 24.75 drop in just a few minutes. That’s where the volatility comes in.
After the low, the ES rallied back up to 4439.25 in 15 minutes, a 19-handle move. After the pop, the ES sold back down to 4421.75 at 3:28 as the MIM went from $380 million to sell to $1.2 billion to sell.
The selling continued toward the close too, as the ES traded down to a new low of 4405.50 at 3:48 before the 3:50 cash imbalance showed $3.7 billion to sell as the ES immediately traded down to 4400.50.
On the 4:00 cash close, the ES traded 4395.50 and then made another new low down to 4381.50 at 4:38 and settled at 4388.50 on the 5:00 futures close, down 49 points or 1.10% on the day.
In terms of the ES’s overall trade, it acted badly but not as bad as some of the others. For instance, the Russell (RTY) continues to get whacked, as it notched its fifth down day in a row and is getting hit again in Thursday’s Globex session, down about 2% so far in early trading (about 5:30 a.m. ET).
In terms of the day’s overall trade, volume was steady at 1.486 million.
Economic Calendar
Closing Prices
In the TradeChat Room
Market On Close : $3.7B to sell. Not a big symbol lean.
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Chart of the Day
Growth, value stocks bring great divide to Russell 2000
Smaller U.S. companies have failed to close a performance gap between faster-growing and relatively cheap shares, as larger peers have done. The Russell 2000 Growth Index has trailed its value-stock counterpart by more than 10 percentage points for the year since March, according to data compiled by Bloomberg. Tuesday’s spread amounted to 18.8 points, reflecting a four-day drop in the value index that reduced this year’s gain to 1.3%. For the Russell 1000 Index, tracking the biggest U.S. companies, the growth-value gap has been as narrow as 0.1 point this month.
Our View:
The S&P reacts to events and the list was long yesterday: The budget battle, mixed earnings, and the Fed saying it could potentially start the tapering process this year. All of this comes as the ES is near its highs.
I am going to keep this short. I had the right idea with Monday’s view, but I got out of my short position when the ES ripped higher Monday afternoon. I know one thing, it’s much easier for me to write about the S&P than it is to trade it.
Our Lean: The ES went out at a 20-point discount to the S&P cash. This discount will have to realign itself to the cash on or after the open. As I have explained in the past, if fair value is 4.50 and the sell programs come in one-dollar below FV, the bids on the open will overcrowd the ES ladder on the open. At 9:30 PM the ES printed 4399.50, but it’s back down to around 4350, down ~1%, in early Globex trading.
Our lean is to buy a lower open or buy the pullback. 4380 is a key level. We can’t say that the markets won’t continue to fall, but the shorts piled in yesterday and tomorrow is the August options expiration. PitBull says the markets will get killed after the expiration, we shall see.
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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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