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Chart of the Day
Inflation’s Influence on U.S Value Stocks Is Seen Rising
Inflation is poised to regain influence on how cheaper U.S. stocks perform relative to shares of faster-growing companies, according to Morgan Stanley Wealth Management. The firm cited the ratio between the S&P 500 Pure Value and Pure Growth indexes, whose components best fit the categories of value and growth within the S&P 500, in a report Monday. Federal Reserve policy has broken down a traditional link between the ratio and the pace of inflation, the firm wrote, citing the breakeven rate for five-year Treasury securities. “We expect that fiscal policy will ultimately get the relationship back in place.”
Stocks Snap Back From Recent Rout; VIX Slumps
When the S&P Futures opened lower, upticked, and then sold off down to 4,117.75, who would have known that just over 6 hours later, it would be trading 4167.25 — 50 points higher.
But hold on, let’s not talk about chart points or trend lines, let’s talk about how the short sellers got used. Lets face it; the ES pulls back — it even sells off — but the bottom line comes down to two very basic rules that I put in the MrTopStep chatroom yesterday!
The first is, don’t FIGHT THE FED.
The second rule is, the trend is your friend.
Below are a few lines from yesterday’s chat. Now tell me I didn’t have a good handle on what I was saying. Initially I got long just before the open and then got out when the ES made its early low :
Pre-9:30 ET Futures Open
IMPRO: Dboy :(9:02:16 AM) : paid 4119 on 1 IMPRO: Dboy :(9:18:57 AM) : paid paid 4119.50 on 1 IMPRO: Dboy :(9:27:09 AM) : paid 13745.50 on 1 nq IMPRO: Dboy :(9:28:37 AM) : paid 13748.50 on 1 IMPRO: Dboy :(9:32:00 AM) : rally then fall has been the early pattern IMPRO: Dboy :(9:36:06 AM) : es trades 4132-4135 today IMPRO: Dboy :(9:36:36 AM) : nq trades 13840 today
IMPRO: Dboy :(9:42:01 AM) : paid 13712.00 on 2 nq IMPRO: Dboy :(9:42:47 AM) : paid 4122 on 6 es IMPRO: Dboy :(9:46:24 AM) : no stp es IMPRO: Dboy :(9:46:20 AM) : 13699 stp nq IMPRO: Dboy :(9:46:24 AM) : no stp es
IMPRO: Dboy :(9:50:39 AM) : sold 4 es at 4133 IMPRO: Dboy :(9:50:53 AM) : +11 or $2,200 IMPRO: Dboy :(9:53:33 AM) : offering 2 nq at 13812 IMPRO: Dboy :(9:57:03 AM) : there is my 4133-35 IMPRO: Dboy :(9:57:22 AM) : this shit could really rip IMPRO: Dboy :(9:57:28 AM) : trend day up ———– see this? IMPRO: Dboy :(9:58:17 AM) : boys with the better seats showing you their hand IMPRO: Dboy :(10:05:13 AM) : u get cash buyers pushing the stocks up and with the thin es volume the algos just run the stops IMPRO: Dboy :(10:26:23 AM) : filled sold 2 at 13812, +100 pts or +4k IMPRO: Dboy :(10:26:57 AM) : I’m still long the 2 es IMPRO: Dboy :(10:27:36 AM) : I was thinking of raising the offer up to 13860
Pull Back Time
IMPRO: Dboy :(10:31:48 AM) : I think we will come into a morning high and pull back 8 to 10 handles IMPRO: Dboy :(11:14:35 AM) : it takes days and weeks to knock the ES down and only 1 to bring it back IMPRO: Dboy :(11:14:58 AM) : up 25 handles on the 2 es
Ringing the Register
IMPRO: Dboy :(12:25:04 PM) : I’m flat sold 2 ES at 4152.00 +3k IMPRO: Trader Dave :(12:25:22 PM) : nice dboy IMPRO: MG427 :(12:25:42 PM) : great call Dboy IMPRO: Dboy :(12:25:45 PM) : thanks TD MIM: bdee :(12:25:58 PM) : nice trade im trying short cause i missed the long trade rarely works ——– I hate when I do that! IMPRO: Dboy :(12:26:23 PM) : MG 30 handles on a 2 lot? Gotta take it IMPRO: Rob :(12:26:32 PM) : Great trade Danny IMPRO: Dboy :(12:26:49 PM) : insane
This really should not take much time to read because of the speed of the trade. The question is why did it move up so fast? The first part and only a small part of the equation was the Wednesday options expiration, the bigger part was the non-stop ETF buying.
Like I said in my posts at 9:58, “the guys with the better seats were showing you their hands.” I know… that doesn’t add up on your charts and I have news for you: it never will.
Once the ES dropped down to its lows, the futures immediately popped 4 to 6 handles and that’s when I jumped on board. There was no volume on the bottom ticks and the premium between the ES and the S&P cash widened out. With tons of buy stops above, it was a non-stop buy program with some small rest in between. The higher the futures went up, the more they rolled higher. Late in the day when the MIM started showing big to buy, this is what I put out:
IMPRO: Dboy :(2:13:49 PM) : going to be a big MiM buy MIM: Dboy :(3:39:58 PM) : small sells showing up MIM: Dboy :(3:51:57 PM) : I said after the MiM it would sell off MIM: Dboy :(3:52:14 PM) Guys with the better seats knew this all day MIM: Dboy :(3:53:23 PM) : they buy all day knowing they have billions in stock to buy on the close, futures rally into the 2.1 bil to buy and they sell, nice game
Conclusion: It takes days and weeks to knock the S&P down and only one to bring it back!!!
Our view: Trading the S&P is predicting the unpredictable — that is never going to change. It’s almost like you have to go in expecting the unexpected, but that’s the game we play and it’s ever-changing.
Our lean: The ES tends to go sideways to down after a big up day. That said, if the ES does pull back on low volume and back and fills at lower prices, I would lean into a long scalp with a stop. A close above 4,176 gets you 4,206 – 4,210.
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