Market Review
Taliban Take Kabul, Moderate Democrats Threaten Pelosi, Delta Virus Strains Hospitals
Friday’s trade was a great example of what I call a “no day” — Meaning people said “no” to trading.
The ES traded 4459.50 on the 9:30 ET futures open, traded up to 4462, and made the low for the day at 4454.25. After the low, the ES rallied up to 4461.75 — technically a lower high — and for the next several hours, traded in a 5- to 6-point range.
At 3:30, the ES down ticked as the MiM showed $231 million to sell, then traded 4459.50 on the 3:50 cash imbalance as the MIM flipped to $1.5 billion to buy and traded 4463.25 on the 4:00 cash close — a new high.
In the end, the ES ended higher by 5.25 points or 0.12% on the day, its 48th record close of 2021. That’s one heck of a grind higher.
Friday was one of the slowest days I have seen in several years. In terms of the ES’s overall tone, it was firm all day. In terms of the day’s overall trade, the volume was the lowest for a full trading session in over 10 years, with only 757,000 futures traded. That included 112,000 contracts from Globex, making the total day-session volume just 643,000.
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Chart of the Day
Gold’s standard-free 50 years leave metal behind S&P 500
Gold has a golden anniversary Sunday. Fifty years will have passed since President Richard Nixon said the U.S. government would no longer convert dollars into the precious metal at $35 an ounce, which effectively ended the gold standard. While the metal generally had bigger gains since that time than the S&P 500 Index, there was no comparison between the two after accounting for dividends, according to data compiled by Bloomberg. The S&P 500’s total return approached 20,000% this week, while gold returned about 4,200%.
Our View:
Turning Points
According to Dow Jones Market Data, the Dow and S&P notched concurrent records for the 4th consecutive session, something that has not happened since October 2017. Like I said in last week’s Opening Print, things have gotten silly on the upside and the total lack of volume is clearly helping the melt-up.
But guess how 2017 ended? The ES suffered a max peak-to-trough decline of less than 2%, gained 6.4% for the fourth quarter, and blew its top in January, gaining more than 7.5% before the end of the month.
In his newsletter, market timer Burt Dohman talks about a descending triangle, and the PitBull said that when that chart pattern shows up, the markets almost always fall. I told him that if I had $50 bucks for every time one of the well-known marker timers called for a selloff over the last 10 years, I would be a multi-millionaire!
I don’t think it takes a genius to know the markets can’t go up forever, but as for “when” the correction comes, who knows — when will they pull the rug out from under the bulls?
I know about the negative breadth and over 50% of stocks trading below their 50-day moving average. It’s also no secret that FAANG and the top-20 tech stocks account for a large percentage of the Nasdaq’s gain.
Our View: The markets have always been about “turning points” which begs the question, will the situation in the Middle East become a turning point?
President Biden’s removal of US troops in Afghanistan was followed by the Taliban’s swift move into Kubal and the announcement that they will hold talks in the coming days aimed at forming an “open, inclusive Islamic government.” At the same time, hundreds of Al-Qaeda militants were released from prisons, which opens the risk to attacks on American soil.
Further, nine Democratic House moderates are threatening to withhold their support for their party’s must-pass budget resolution. That’s until Speaker Nancy Pelosi changes course and instead allows their chamber to first vote on the $1.2 trillion bipartisan infrastructure plan the Senate approved this week. Another possible turning point?
Then there’s always the Covid-19 delta virus, which is overloading hospitals and acting as a continual threat to slow down the economy. I mean, the delta strain is spreading pretty quickly considering we’re still in summer. Another possible turning point?
All of these factors could make for a very long week for the stock market.
Our Lean: The S&P hates uncertainty and clearly there is an abundance of that floating around. With the markets up so much over the last two months, I think sell programs and sell stops could be the flavor of the day. Remember, the bears have to eat too!
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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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