Market Review
The Thursday to Friday rally definitely surprised a lot of folks, but why? It’s the same thing on every dip whether it’s a 40-point or 200-point drop. Plus, it’s exactly what we talked about in the Opening Prints leading up to the move.
The ES sells off for a few days, everyone starts calling for a crash, then up it goes. Wash, rinse, repeat.
The ES traded 4404.75 on Friday’s 9:30 futures open, down-ticked to 4400, and then started running buy stops. At 9:49, the ES traded 4423, up 23 points from the early low in the first 29 minutes. After a small pullback down to the 4419 area, the ES made a sequence of new highs: 4424.25 at 9:57, 4429.25 at 10:12, and 4433 at 10:21.
After some narrow back-and-fill price action, the ES printed down to 4425.50 at 10:47 and then rallied all the way up to 4439 at 12:58, up 39 points off the early low. After a dip, the ES then rallied up to the high of the day at 4440.50 just before the 3:50 cash imbalance.
The ES traded 4438 as the 3:50 cash imbalance showed $1.8 billion to buy and traded 4437.50 on the 4:00 cash close and settled at 4437.50 on the 5:00 futures close, up 32.75 points on the day.
In the end, the only thing I have to say is that it takes days, or in some rare cases weeks, to knock the S&P down and only one to bring it back. In terms of the ES’s overall tone, it was firm all day. In terms of the day’s overall trade, volume was low at 1.27 million, down almost 600,000 contracts from Thursday.
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Eventually, the bears will get their way, but in the meantime, KISS — Keep It Simple, Stupid — and just buy the dip. No Blackrock, Citadel, JPMorgan, or Goldman can tell you when a monumental selloff will occur because that would go against their in-house HFT and Algorithmic trading programs that were designed to buy the dip as long as the Federal Government is spending.
This week’s economic calendar starts with Existing Home Sales today and New Home Sales tomorrow, while the House is set to vote on the $3.5 trillion budget framework on Tuesday. Durable goods orders and Initial Jobless Claims are on Wednesday and the second-quarter GDP is on Thursday.
However, the main event this week is going to be the Federal Reserve’s Annual Symposium in Jackson Hole, which starts on Thursday and goes until Saturday, with the main event being the keynote speech by Fed Chair Jerome Powell, scheduled for 10 AM ET on Friday.
After last week’s July Fed minutes saying there is a greater likelihood of a taper later this year, Friday’s speech may shed further light on the direction of the Fed before the September meeting. That always has market-moving potential.
We already know that Powell could be a rally spoiler, but that’s not until Friday and even then I’m not sure the Powell headlines will ‘kill’ the S&P.
Plain and simple, the S&P gave the bears a big downside head fake and just traded 4451.75 on Globex at 10:14 pm. Put simply, the S&P is on a roll and I don’t think all the shorts have covered yet. There are a bunch of numbers out this week, but I do not see anything that can dispute the rally right now.
How high can it go? I know a lot of folks are talking about ES 4500 but I am not sure it can keep going straight up. The ES is up over 100 points from Thursday’s 4347.75 Globex low, so I can’t rule out a 20 or 30 point pullback. I am not saying it’s going to happen today, however, that would be a good thing. We used to have a rule that said the ES tends to go sideways to down after a big up day, but that has not worked so well as of late.
Our Lean: The lower the volume the more likely the ES will keep moving up. My guess is we see 4480 over the next few days. Trading the gaps has worked very well over the last few months, so if the ES gaps higher my lean would be to sell the open and buy the pullback for a day trade.
For what it’s worth, I am still long 2 ES from Thursday’s open. I’m offering 1 lot at 4456.50 and if I get filled while I am sleeping, that will be a 100-point winner. I may offer the other 1 lot at 4479, but I want to check out the price action and keep an eye on the VIX. On Friday, the VIX made a high at $23.90, dropped down to $18.18, and settled at $18.56.
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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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