Market Review
S&P 500 Futures Recap – Trade Date June 7, 2021
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Chart of the Day
Fed Has Billions in Corporate-Bond ETF Shares Up for Sale
Investors in 16 exchange-traded funds are about to find out what happens when the Federal Reserve goes against them. All the ETFs invest in corporate bonds, and the U.S. central bank is poised to start selling stakes bought last year to support the market during the Covid-19 pandemic. The holdings were valued at $8.6 billion as of Friday, according to data compiled by Bloomberg. The most valuable, at $2.4 billion, was a 6% stake in the iShares iBoxx U.S. Dollar Investment Grade Corporate Bond ETF.
Our View
Thin to Win; Summer Markets Come Early For S&P 500
For years, the S&P 500 futures and options held the crown for the wildest futures market in the world. It moves fast and it takes no prisoners. If you get it right, there is no payday like catching the ES when it moves sharply.
A simple 10 lot is $500 a point and in many cases, the futures move 50 or 60 points on a given day or night. A 100 lot is $5,000 a point — so you get the picture.
I told the PitBull yesterday that “I could trade my way out of a loss when I was on the floor.” He came back saying, “Things have changed, it’s all computers.”
I think we all know the markets are constantly evolving. Once I figure out a pattern in the S&P or Nasdaq, it’s not long before it’s gone. Why? Because if I can see the pattern, you can be damn sure the algos can too. But don’t kid yourself, just because it’s changing doesn’t mean you can’t trade it. In this environment, it really is “trade or fade.”
Personally, I am very risk averse. I know that sounds funny coming from someone that trades the S&P. However, you know as well as I do that we can buy the ES all day and keep getting stopped out, then you buy it at the same price late in the day and it goes flying up.
Like I said yesterday, there are three parts to the trading session:
- What happens on Globex
- What happens after the 9:30 open
- What happens in the final hour.
In most cases, the indices that have been left behind will rally and that’s exactly what happened late in the day yesterday. After making an early high of 4230.50 at 9:42, the ES sold down to a low of 4214.50 at 2:07. From 9:55 am to 3:09 the ES traded in a 7 handle range from 4222.00 to 4214.50. If you didn’t fall asleep, we finally got some action after the MIM showed an early buy imbalance and the ES rallied up to 4223.25 at 3:11.
The ES traded 4222.50 as the 3:50 cash imbalance showed $500 million to buy, traded 4225.00 on the 4:00 cash close and settled at 4226.00 on the 4:15 futures close, down 2.75 handles on the day or basically flat (down 0.07%).
In terms of the ES’s overall tone, it was weak most of the day, but firmed up late as the Nasdaq rallied. Despite the uncertain price action, the latter had strong breadth all throughout the session, as pointed out several times in the chat.
In terms of the day’s overall trade, volume was at or near the lowest of the year at 876,000 contracts. You can read and listen to CNBC and Bloomberg, but we know what “thin to win” does when the ES sells off on very low volume.
Our View: The S&P and Nasdaq futures did pretty much what I thought they would, they sold off and bounced. That’s how it works in the world of quantitative easing and massive stimulus programs. I have to keep saying it: Don’t Fight The Fed!
Massive amounts of money have been made by the big institutions riding the Fed’s liquidity by buying the pullbacks. I don’t know how long this will last, but I can say there could be a few more years of upside. Will there be stumbles along the way? I am pretty sure there will be. That’s why you need to keep your powder dry.
Someone in the chatroom asked me if I only go long? No, I sell (short) too. But remember, I’m not here to fight city hall. If the Fed is buying, I want to go for the ride.
I usually write the OP after the close or after dinner, and I rarely change it. That said, the ES has made several attempts to take out the 4238.25 contract high and there is a big string of buy-stops that have built up over the last two weeks. I am long on the ES and NQ from yesterday’s lows and I think we see an upside rip today. The question is, does it happen early then pull back or does the ES pull back then rally?
Only time will tell, but 4240 is no longer my near-term ES upside objective. Instead, 4265 is my new target. Wednesday and Thursday are suspect, but for now, let’s keep taking what the market gives us and not force anything.
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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