Tuesday’s Session was Cycle Day 3 (CD3): Price fulfilled Cycle Objectives but failed to sustain bid above prior high, then this Cycle’s decline began. Three-Fourths of the average decline is in-place (3882), so additional selling may spillover into CD1’s session. Range was 48 handles on 1.611M contracts exchanged.
…Transition from Cycle Day 3 to Cycle Day 1
This leads us into Cycle Day 1 (CD1): Having fulfilled three-fourths of this cycle’s average decline (3882), further weakness can be anticipated to flush out the final sellers before this cycle’s rally begins. As such, there are two estimated scenarios to consider for today’s trading.
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Chart of the Day
GMTT / Chart of the Day / Crude / March 24, 2021
Today we discuss Crude again as it reached our downside target of 57.70. We went short at 65.70 and as mentioned last week, expected to reach the target. Yesterday we took profit and went long again at 57.85. As you can see on today’s chart the uptrend is still intact and we can see another bounce. First short-term upside target is 60.55 and the suggested sell stop is at break-even.
We like to explain how you can best utilize the signals given by GMTT. In example Crude: When it gets close to the given downside target i.e. 57.70 then you look if the downside holds. If it does, you flip the trade in this case from short, to a long position. You take profit on the short position and buy Crude at the market with a sell stop just below the given downside target. When it does not hold you get closed out with a small loss, and then wait till the next downside target and then try it again. Especially when an important level is reached and the expectation is a bounce of, the current low, then you only want to focus on being long. In the current case with Crude, we gave a downside target of 57.70. The overall outlook and the trend are still bullish. When there is a good close below 57.00 this outlook will change.
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Tech Stocks Back In Style, Russell Down 4.46% In 2 Sessions
There has never been more stock market rotation. As yields rose on the 10-year note and 30-year bonds rose over the last month stocks fell with the technology sector leading the markets lower. The higher cost of borrowing and the economy improving pushed investors out of the Nasdaq and into the Russell 2000. After pushing the Nasdaq into ‘correction territory’ the dip buyers showed up and the S&P and Dow made new all-time highs but the Nasdaq was languishing as investors moved out of tech and into the small caps but over the last week the Nasdaq has outperformed. Yesterday the Nasdaq closed down 0.5% and the Russell 2000 tumbled 3.6%, marking its worst day since February 25th and down 4.46% over the last two sessions as beneficiaries of the reopening trade tumbled. FAANG stock Netflix gained 2.29% while Amazon and Google both closed 0.80% higher and Microsoft gained 0.68%.
Are tech stocks back in style or is the bounce in the notes and bonds supporting tech? My opinion is that eventually, the markets absorb just about every negative with the help of the government printing presses. How long can that last? Not forever but all you have to do is look at a chart of the 2007-2008 credit crisis to see what happened after the Fed enacted its bond-buying quantitative easing programs. It resulted in the longest bull market in history and the markets are still going up. Yesterday, when asked about asset valuations, Federal Reserve chairman Jerome Powell said“some asset prices are a bit high” but noted that funding risk is relatively modest and banks are well-capitalized. Yellen characterized asset prices as “elevated” by historical standards. There is little doubt that asset prices are elevated but with the Biden administration pushing for a nearly $3 trillion Covid19 and stimulus package and infrastructure programs they may not be that elevated.
Our view, whenever you have the Fed speaking the markets sell-off but there is a consistent pattern that’s been happening just about every day for the last 6 weeks. At 3:00 ET a sell program hit the Nasdaq. I have to admit I have not adjusted to it very well but it seems like it’s buy the early pullback and get short with the guys with the better seats at 3:00 when they set up the close. Yesterday the Nasdaq made its high just before 3:00.
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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