Market Review
I understand it’s the end of the summer and the ES is up over 20% YTD, but unless the ES is selling off, there is an absence of upside volume. There have been several days in the last month that total ES volume has been under 800,000 contracts and some days were down to 760,000.
The S&P notched its 52nd record closing high of the year on Friday and has gone 287 calendar days without a pullback of 5% or more.
As for Friday’s action, the S&P futures traded down to 4462.25 on Globex Thursday night, traded 4484.25 at 3:36 am, and opened at 4474.50 at 9:30 ET for Friday’s session. It was a big one, with the Fed’s Powell speaking at 10 a.m. from Jackson Hole.
After a shallow low, the ES rallied 10 points up to 4483.75 at 10:00 and then pulled back to 4475 just before Jerome Powell came out saying, ‘The Fed shouldn’t overreact to a recent spike in inflation.’
After that statement, the ES rapidly rallied 27.25 points up to 4502.25. The ES then pulled back, 10 points down to 4492.25, and at 2:02 traded up to a level I spoke about in the MrTopStep chat at 4408.25. For the second day in a row, the chat room did incredibly well, capitalizing on the intra-day movements in the market.
After pulling back to the 4503.50 level, the ES rallied up to a new high at 4509.25. After another small pullback down to the 4505.50 level, the ES traded to the high at 4510 at 3:47.
The ES traded 4507.25 as the 3:50 cash imbalance showed $2.478 billion to buy and traded 4505.75 on the 4:00 cash close. The ES settled at 4507.50 on the 5:00 futures close, up a whopping 41 points or +0.93% on the day.
In the end, the ES acted “pent up” on Thursday, but came flying back to life during Friday’s day session.
In terms of the ES’s overall tone, it was very firm. In terms of the day’s overall trade, volume was steady at 1.16 million. I have to point out that the all-time volume high for the ES is 6.69 million contracts set in March of 2009.
Economic Calendar
Closing Prices
In the TradeChat Room
Market On Close: $2.5B to buy at 15:50, only $670M left at 15:55
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Baxter
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.
I tried to read through my Friday post and can’t even decipher what I wrote! I think some old posting was mixed in somehow. On Friday, Baxter was 60% convinced the low would come in the first 30 minutes, which happened. He was 78% on the high coming during the post-12:00 session but slightly favored the 12:00 to 15:30 time slice over the last 30 minutes. That was wrong as the high came in during the last 15 minutes. His call of the afternoon hosting the high was correct.
For today’s low call, Baxter is 60% convinced that it will come in the AM session and just marginally favoring the first 30 minutes. For the high, there is a confidence level of only 52% that it will be after 12:00 and he picked the 12:00 to 15:30 window as the most likely time frame.
Chart of the Day
Twenty-year valuation low is seen helping U.S. small caps
Smaller U.S. companies are due to “turn a corner” because they are so cheap relative to larger peers, according to Jim Paulsen, Leuthold Group Inc.’s chief investment strategist. Paulsen compared forward price-earnings ratios for the S&P SmallCap 600 and S&P 500 stock indexes in a report Thursday. The small-cap gauge’s forward P/E has been as much as 23% lower this month, according to data compiled by Bloomberg. That’s the biggest discount since May 2001, in the midst of a bear market. Sustained earnings growth, a falling dollar, and higher bond yields would turn small caps into market leaders, he wrote.
Our View
You’re supposed to buy the ES when it sells off late on Thursday afternoons and that rule worked superbly. From Thursday night’s 4462.25 low around 10 pm to the ES’s 4510.00 contract high on Friday afternoon, the ES rallied 47.75 points in 21 hours. The ES got its marching papers and went with it.
For now, I am going to stay with my 4520 call. I think there is a good possibility the ES goes higher, but I think you have to keep an eye on the events going on in Afghanistan for the next few days.
According to Sam Stovall, chief investment strategist at CFRA, September has been the worst month of the year for the S&P 500 (SPX), with the benchmark index falling an average of 0.56% since 1945. The S&P has advanced only 45% of the time in September, the lowest rate of any month, CFRA’s data showed.
The Week Ahead
- Monday: Pending home sales, month-over-month, July (0.4% expected, -1.9% in June); Dallas Fed Manufacturing Activity index, August (23.0 expected, 27.3 in July)
- Tuesday: FHFA Home Price index, month-over-month, June (1.9% expected, 1.7% in May); S&P CoreLogic Case-Shiller 20-City index, month-over-month, June (1.87% expected, 1.81% in May); S&P CoreLogic Case-Shiller 20-City index, year-over-year, June (18.60% expected, 16.99% in May); MNI Chicago PMI, August (68.0 expected, 73.4 in July); Conference Board Consumer Confidence, August (123.4 expected, 129.1 in July)
- Wednesday: MBA Mortgage Applications, week ended August 27 (1.6% during prior week); ADP employment change, August (650,000 expected, 330,000 in July); Markit U.S. Manufacturing PMI, August final (61.2 expected, 61.2 in prior print); Construction spending, month-over-month (0.2% expected, 0.1% in June); ISM Manufacturing index, August (58.5 expected, 59.5 in July)
- Thursday: Challenger Job Cuts, year-over-year, August (-92.8% in July); Initial jobless claims, week ended August 28 (346,000 expected, 353,000 during prior week); Continuing claims, week ended August 21 (2.862 million during prior week); Unit labor costs, 2Q final (1.0% expected, 1.0% in prior print); Trade balance, July (-$74.1 billion expected, -$75.7 billion in June); Factory orders, July (0.3% expected, 1.5% in June); Durable goods orders, July final (-0.1% in prior print); Non-defense capital goods orders, excluding aircraft, July final (0.0% in prior print); Non-defense capital goods shipments, July final (1.0% in prior print)
- Friday: Change in non-farm payrolls, August (750,000 expected, 943,000 in July); Change in manufacturing payrolls, August (700,000 expected, 703,000 in July); Unemployment rate, August (5.2% expected, 5.4% in July); Average hourly earnings, month-over-month, August (0.3% expected, 0.4% in July); Average hourly earnings, year-over-year, August (3.9% expected, 4.0% in July); Markit U.S. services PMI, August final (55.2 expected, 55.2 in prior print); Markit U.S. composite PMI, August final (55.4 in prior print); ISM Services Index, August (62.0 expected, 64.1 in July)
Our Lean: There are a lot of economic reports this week and the U.S. is saying there is credible information that there could be another attack on the Marines guarding the airport in Kabul. I wrote this earlier in the day (Sunday)and it was just reported that there was a massive explosion that took place near the Kabul Airport. Clearly, the terrorists are trying to destabilize the U.S. exit from Afghanistan.
If the ES gaps higher on the open today, I would look to sell the open or the first rally above and buy the pullback. While I still think 4520 is in the cards and possibly 4550 later in the week, I also want to take a guarded approach. The ES ran a lot of stops on Friday and closed up 41 points. I can’t rule out a 15 to 20 handle pullback.
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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.
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