Market Review
Despite a ‘choppy, slow week’ the ES ended the week up 1.62%. The ES trading range was already narrowing going into last week, but the trading ranges and volume slipped considerably. The ES always does higher volume on declines and lighter volume on the rallies, but when the rallies are fast and trade into new-high territory, volume drops hard. Additionally, last week saw a different rotation almost every day — for instance, sell the S&P / buy the Dow and Nasdaq — with Friday being a buy Dow / sell Nasdaq rotation. Either way, it mixed up the week.
On Friday the ES opened at 4536, down slightly from its all-time contract high. After the open the ES sold off down to 4533.75 at 9:33 and then rallied up to 4547 at 9:47. The ES ‘back and filled’ for the next 30 minutes, then rallied up to the day session high and new all-time high at 4551.50 at 10:30. The next move was a 36.25 point drop down to 4515.15 at 11:51.
Over the next two hours, the ES fought its way back up to the 4545.75 level at 2:42 and slowly lost momentum late in the day. The ES traded 4536 as the 3:50 cash imbalance ‘flipped’ from an early $347 million to sell to $1.4 billion to buy. At 5:00, the ES traded down to 4528 and settled at 4529.25 on the 5:00 futures close, down 7.25 points or -0.16% on the day.
In the end, it was a good week for the markets but a bad week for volumes. In terms of the ES’s overall tone, it seemed like there was a lot of two-way flow. The dip buyers were there but there was a small late-day walk away. In terms of the day’s overall trade, there were 196,000 ES traded on Globex and 1.083 million traded on the day session for a grand total of 1.267 million contracts traded.
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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.
Last Trading Day:
High: ~10:30
09:30 – 10:00 > 90% (wrong).
Low: ~11:45
12:00 – 15:30 53% (wrong)
Today:
High:
09:30 – 10:00 38%
15:30 – 16:00 44%
Low:
12:00 – 15:30 >90%
Baxter missed the high and low on Friday but only by about 30 minutes. He did get the shape of high before low correct.
Chart of the Day
Trump’s blank-check deal follows months of SPAC malaise
Former President Donald Trump’s move to take a social-media business public through a blank-check company, Digital World Acquisition Corp., followed months of malaise for his partner’s peers. The Indxx SPAC & NextGen IPO Index fell 34% through Thursday from a record in February, according to data compiled by Bloomberg. The gauge consists of special-purpose acquisition companies and businesses that went public through mergers with SPACs. During the same period, the Renaissance IPO Index slid 7.7% and the Russell 3000 Index gained 13.5%.
Our View
I know the earnings are the big focus…but energy stocks are too!
Did you know the energy sector is up 54% this year? Well if you haven’t noticed we are in a full-blown energy crisis, and guess what? Neither of our good friends like Russian or Saudi Arabia is going to help us. Currently, the sector is leading the second-best performing group by about 16 percentage points, the third-largest such gap between the top two sectors since 2000.
I know I sound the alarm on a lot of things but I think crude oil is going to $100 and possibly $120. They say a firm energy sector is a positive for the S&P but we know it’s not for the general public. I saw a picture of a small community outside of LA selling premium gas for $8.50 or $9.00 a gallon. At $84 crude oil is trading at a seven-year high. In the last 30 days, the ES has risen 3% while crude oil has risen 21%… there’s just no way this is good!
TECH Giants Report This Week
This is going to be a big week for the S&P, with 30% of the S&P reporting this week and some big tech names are in the mix, like Apple, Amazon, Alphabet, Microsoft, Facebook, and Twitter. Further, 30% of the Dow reports this week with Caterpillar, Coca-Cola, Merck, Boeing, and McDonald’s topping the list.
According to I/B/E/S data from Refinitiv, of the companies that have reported, 84% beat estimates. Earnings are so far expected to be up 34.8% over last year. In terms of economic data this week, we have new home sales and consumer confidence on Tuesday and durable goods orders on Wednesday. On Thursday, we have the third-quarter GDP reading, initial jobless claims and pending home sales. Friday is a big one, as we get the PCE price index, the preferred inflation gauge watched by the Federal Reserve. My guess is this week is busier than last week.
Our view, during any big rally you should always keep your eyes on the VIX. Last Friday, the VIX traded down to $14.84. Barring any major headlines, I think we see higher prices. The PitBull said “This is a very select rally. Many of the big names have not been doing that great and the list of really weak stocks continues to increase the higher the index goes.”
That very well may be the case. I’m not sure what’s going to stop the S&P from going to 4650 to 4700. Over the last week, the ES did have some small selloffs, but when you look at the weekly chart, it looks like a big back and fill pattern.
Our lean, The ES has received all of September’s decline in fast order. I really think the end of the year is going to see a melt-up and I also think the Dow will outperform. I think most of the declines will be short-lived buying opportunities and the best six months for stocks starts in November. My guess is Friday’s weak close will get bought.
Buy the early weakness, it will probably be a two-way trade so I can’t rule out selling a rip or two, but ideally, the trend is to buy the pullbacks. I raised my year-end target to 4750 and that may be low.
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.
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