Disclaimer: For educational use only. I’m not dispensing financial advice. We are having an intellectual conversation (you and I) on the topic of trading the Emin futures using the Lens of Wyckoff Principles and the Eyes of WB’s clock. The clock that controls all turns intraday, every day!
As first days of the month go, yesterday did not disappoint. The day opened like a repeat of Wednesday with a test of the opening print and higher highs. Price was checked at 11:00 am and turned south. This time the dip tested the HOD of RTE previous day. Price found a bid at 11:20 and the day ended favoring the bulls. Setting a new high once again.
Market Timing: Spill down sealed at 9:40 with AM HIGH late and strong at 10:50 marker. MID AM LOW at 11:20, lunch high at 1:30 pm marker. Dog leg from lunch high to mid pm low 2:10 (early and weak). Day ended with the last hour high of day (HOD) at 4212 (I had that level) See chart below.
Weekly: July opened up pressing higher highs on reduced volume with summertime trade.
Daily: After testing previous day’s close, price gets a bid and closes strong.
Technical Position: Gap upholds and forms an uptrend channel that price is too steep and unable to follow as the AM HIGH is checked. Small four-point trading range is formed and price breaks the support line to find a bid at the previous day’s RTE high of day. The next uptrend channel holds price action and price is able to lift offers within the channel. Price closes strong to end the day.
GLOBEX: At the last minute in the last bar, price prints a spike up taking out the current high of day on greatly increased volume. Overnight Globex prints a higher all time all at the 4315 level and starts to offer down. Currently, trading 4309 and falling.
Looking Forward Friday, July 2, 2021
Monday is closed, so the Fourth of July is a holiday. Celebrate with your family and friends. The markets are closed. So, today may be the last day before a holiday trading day. Big picture traders are looking for the Jobs numbers for direction.
Bullish Anticipation: Traders may challenge the overnight GLOBEX high and get turned back. Friday’s jobs numbers may move the market.
Bearish Anticipation: Traders may look to test the RTE close again (Globex tested once) and see if they can probe to a lower level.
Trade Plan: It’s summertime trade. The delta variant does not seem to phase the bulls or bears. Traders waiting on jobs report today.
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Chart of the Day
U.S. tech stocks part with bond yields in dot-com reprise
The dot-com era is back for U.S. technology stocks, at least in relationship to bond yields. That’s evident from the 200-day correlation between the S&P 500 Information Technology Index and the 10-year Treasury yield, as compiled by Bloomberg. This indicator closed Wednesday at minus 0.25 — the lowest level since October 1997, in the midst of a years-long advance in internet-related shares. The correlation was highlighted by Liz Ann Sonders, Charles Schwab Corp.’s chief investment strategist, in a Twitter post Tuesday.
S&P and Nasdaq Up 8 Out Of The Last 9 Sessions — What’s Going to Stop It?
The Opening Print or a rough version of it has been around a long time. I am not sure how many it goes out to, but it’s read by a lot more. When I used to do all the index arb buy and sell programs business for UBS, I had to pick up too many lines to say, “Hey this shit’s going down! I’m doing sell programs!”
I know it sounds like BS, but it’s not. If the futures were weak and cheap to fair value, the program trader, Steve Lau, would pick me up and say “Danny, where are the futures?” The markets were weak and then in comes Moore Cao with 800 big SPUs to sell — forget the mini shit, I’m talking the big ones with a $500.00 multiplier! That’s $400,000 per point. It was big then and it’s big now.
The direct line would ring and I would pick it up and Lau would say again, “where is it?!”
I would bark back, “It’s 1101.00 at 1101.20.”
Steve: “Bid 1.00 on 100 and bid 1099.00 on 100.” He’d then hear me say, “Sell 400 down to 1,097.00 and seconds later I would say, “You’re filled! It’s 50 bid at 80.”
Steve would come back and say, “bid 50 on 50 and 30 on 100!”
When I knew I was filled on the 400 sales of the 800 lot I’d say, “sell 400 down to 20!”
All Steve had to know was that he was filled on his futures buys because he had already sold the cash before I executed the order. He was not supposed to do that, but he knew I was going to make sure he was filled. This type of trading made up 20% or 30% of the S&P pit volume back then, but at one point it made up 80% or 90% of the daily volume.
Today you can still read fair value and the premiums, but index arbitrage buy and sell programs only make up a small percentage of the ES’s total volume. The Pit Bull hated program trading in the late 80s and predicted increased use would kill those markets and I believe he was 100% right. It was really after the CME took Globex online that things really started to change.
Within a few years of when the BOTs started, algorithmic and high-frequency trading volumes started to leap. The desk was already executing mini contracts, but they were priced too low and that’s when I moved the desk down in front of the S&P options pit. You could still trade the S&P in the pit, even as more customers migrated over to electronic trading.
The S&P that had over 300 locals was down to 20. By this time high frequency trading was “robbing the markets” — Just think how much these HFT firms make. They trade directly with the exchanges and at the same time supply liquidity. It’s crazy because this industry was made up of millions of retail accounts and there were over 500 clearing firms between the MERC and the CBOT. Today there are 22 and only 3 or 4 that you or I could open an account at.
When we talk about low ES volume like Thursday’s 750,000 you have to take out the 250,000 from Globex. That means 500,000 contracts traded on the day session, but let’s be nice and say 75% of that volume is high frequency and algorithmic trades which is 375,000 contracts. That only leaves 125,000 in customer volume. I do not know all the exacts, but what I do know is the markets are constantly evolving and I do not believe it’s about leveling the playing field.
As I always say…if you want to make money trading futures you need to “think like an algo.”
To sum it up, we live in an ever-changing world where nothing stays the same for long. Old tools we used to use to make money don’t work or they only work as long as it takes the next algo to figure it out. As a very well-known hedge fund manager once said, “You guys are picking up nickels in front of steamrollers” and that’s what it feels like sometimes/
As for the ES recap, the ES was firm and the NQ was weak. But like the title says, the S&P has closed higher 8 out of the last 9 sessions and made its 35th record high close in 2021. Need I say more?
This melt-up is a melt-up. Who would have thought the ES would rally so far with little to no pullbacks. Adding to it, the Fear-Greed index (a measure of sentiment) remains far from frothy. It’s like everyone expects a pullback and you know what that can do during a melt-up.
My ES 4690 year-end call is not looking so bad.
Our lean is to fade the jobs Friday gap. If the ES gaps down, I want to buy the early weakness and visa versa if the ES gaps higher. Either way, any early weakness should produce a bounce. After that I’m sure it will go really quiet until late in the day.
Above all else, have a safe and happy 4th of July!
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