Market Review
The ES opened at 4334.75, traded up to an early high at 4344.50 at 9:33, and dropped 78 points down to a higher low at 4267.50 at 11:42. After the low, the ES rallied back up to 4391 at 11:00, made another higher low at 4268.75 just after 2:00.
From there, the ES made several minor highs up to 4296.75 just as the MIM was showing over $350 million to buy at 3:09. The MIM widened out to over $500 million to buy but started drifting lower and the ES dropped 19 handles down to 4277.25 as the MiM ‘flipped’ to the sell-side.
The ES traded 4290 at 3:50 as the MIM showed $1.79 billion to sell, dipped to 4277, and traded 4292 on the 4:00 cash close. The ES settled at 4294 on the 5:00 futures close, down 56.75 points or down 1.30% on the day.
The main weakness again came from the Nasdaq (NQZ21:CME), which fell 2% as traders continued selling the high-flying tech stocks as yields moved higher. Yesterday was the 3rd time since September that the Nasdaq has fallen 2% or more.
In the end, it was another ‘rough and tumble’ trading session. In terms of the ES’s overall tone, it had a very hard time gaining traction with the NQ so weak (NQ down 288.25 points or -2%). In terms of the ES’s overall trade, volume was steady at 2.065 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: ~9:30
2:00 – 15:30 70% (wrong)
Low: ~11:40
12:00 – 15:30 80% (wrong)
Today:
High:
15:30 – 16:00 84%
Low:
10:00 – 12:00 >90%
Chart of the Day
S&P 500 sectors have smallest gap in decades
Favoring stocks in some U.S. industries and avoiding others mattered less in the third quarter than it has in decades. A comparison of the S&P 500 Index’s 11 main industry groups, or sectors, shows as much. The biggest gain was 2.3%, posted by financial stocks, and the largest drop was 4.6% for industrial shares. The gap of 6.9 percentage points between first and last place was the smallest in any quarter since the sector indexes were first calculated in 1989, according to data compiled by Bloomberg. The prior record was 8.1 points, set in 1989’s third quarter.
Our View
Turnaround Tuesday
There were several factors for why the S&P was so weak:
- The yield on the 10-yr note rose to 1.481%
- Prices up / Growth Down
- Oil prices rose to a 7-year high after OPEC/Russia decided to to continue increasing production in measured steps
- The Dollar Index hit the highest point since September 2020
- FaceBook (FB) Fell 5% after a national television appearance on 60 Minutes by a whistleblower who has provided internal company documents to The Wall Street Journal, and — we now know — the Securities and Exchange Commission.
- FaceBook, Instagram and WhatsApp outages (and that only added to the whistleblower pain)
- The Biden administration announced that it will keep tariffs on Chinese imports as it presses Beijing to fulfill promises to buy more U.S. goods and services as it presses for new trade talks
- Democrats considering scaling back the next spending package
There is clearly a high level of uncertainty and we all know how much the markets dislike that. Recently there has been a high level of news for the stock market to digest and after Friday’s 100-point rally, the ES made an early U-turn south. I said in yesterday’s OP that I expected a two-way trade and that is exactly what we got. As I have said many times, the ES can take one or two pieces of bad news but when it’s 4 or 5 pieces, it becomes a juggling act.
Our lean, the ES can rally but not hide. October is upon us and I don’t think the wild ride is over. Sell the early rallies and buy the pullbacks. The 4260-70 level is key on the downside and 4460 is key on the upside… pick your poison and say hello to Turnaround Tuesday!
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
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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