After closing weak on Friday and down five days in a row, the S&P 500 futures (ESZ21:CME) gave us a late rally on Monday and ended the losing streak.
The ES traded 4481.25 on Monday’s open, rallied up 4483.50 at 9:33, and sold off down to 4448.50 at 10:21, down 35 points from the high. It rallied hard through Globex and puked almost immediately after the open.
At 10:48 the ES traded back up to the 4465 area, then sold off down to a new daily low at 4442. The ES rallied back up to 4457.50 just after 1:00 and then got hit by several sell programs that pushed the futures all the way down to 4435 at 2:42. Like it did all day, the ES rallied back to the 4444 level but then it ‘double bottomed’ at the 4435 level.
After the retest, the ES put in the low of the day at 4434.50 and then several buy imbalances started showing up. At 3:11 the ES traded back up to the 4447.75 level as the early MIM showed $127 million to sell.
After a small pullback, the buy imbalances started showing up again, pushing the futures up to the 4456 level at 3:33, up 21.5 points off the low as the MIM turned to $816 million to sell. The ES traded 4450 at the 3:50 cash imbalance, traded 4459 on the 4:00 cash close, and settled at 4466.75 on the 5:00 futures close, up 14.75 points or +0.33% on the day.
In the end, it was another tough day for the bulls, but the late rally halted the 5-day decline. In terms of the ES’s overall tone, the sellers were in control all day until the late 4434.50 low. In terms of the day’s overall trade, volume was on the high side at 1.464 million contracts traded.
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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.
Running on updated models for Monday, Bax called the low most likely in the first 30 minutes (43% convinced) or the 10:00 til 12:00 time frame (29%) giving the morning an overall 72% likely hood. Wrong.
No prediction. Models crashed last night during training.
Chart of the Day
Options show U.S. stock love is lacking in equity indexes
“Lots of love for equities but not indexes” is evident in options linked to U.S. shares, according to Liz Ann Sonders, Charles Schwab Corp.’s chief investment strategist. She drew the conclusion in a Twitter post Friday by comparing put-call ratios for equity and stock-index contracts, as compiled by Cboe Global Markets. Less than one put option changed hands for every two call options in the 20 trading days ended Thursday. For index options, the comparable 20-day average exceeded 1.6 puts for every call. The resulting gap between the ratios was the widest since August 2007.
I don’t know what to say. The ES looked terrible, but late in the day the VIX dropped and the ES took off to the upside catching the shorts offsides. I still don’t think the ES just goes ripping up to 4550, but then I also think all the negative bank reports about a stock market correction are not adding in all the support the U.S. government is providing in the way of stimulus and zero borrowing cost.
We keep seeing the market sell the early rallies and buying the pullbacks later in the day. But even as we were on the verge of a sixth down day in a row, the ES was only 2.5% off the highs.
Our Lean: Today is the CPI number and I am wondering if yesterday’s late rally was a front runner of this morning’s number. That said, our lean is to buy the pullbacks. I think there are a lot of shorts around and we can’t rule out an upside buy stop run.
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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