Market Review
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!
Traders were Gobsmacked wrapping their heads around why the market opened 70 handles down from the CASH close. I had given the 4281 as a level where price may find some buying support. The first level was quickly taken out. The second level did great. Price ping-ponged between the high and the low for about an hour and a half until the upper resistance was broken. The bulls were on a mission to tag the previous day low and nothing was going to keep them from completing it.
Market Timing: It was a gap down day. The spill-up sealed the first five minutes. By 9:50 price had set the current low of day. At 10:00 price quickly probed the high of day. The AM LOW came in at center time. Price worked in a tight 10-handle base of accumulation for the next 30 minutes. Mid AM is late and strong with the lunch high tagging the low of the previous RTE day. Price gets weak and tags the 62% (5/8) retracement in the last hour at the 3:50 mark.
Weekly: Trading within the range of the previous week. Closed in the middle.
Daily: Opened below the low of the past four days. Price found a bid and probed the low of the previous day’s low.
Technical Position: On a gap down, savvy shorts will close the previous day’s position. VIX was 20 or so. Price was whippy trading around a 10-point range. After an hour and a half base of accumulation, price broke free from the upper range and found a bid. Price tested the low of the previous RTE CASH day and started to drift back down.
GLOBEX: Price has pulled back to test the 4293 handle and found a bid.
Looking Forward to Friday, July 9, 2021
Bullish Anticipation: If price is looking to go higher you should see an expansion in the price behavior as price is moving up on increased volume.
Bearish Anticipation: Due to the increased volume from RTE you may see the lows get tested to ensure there is no hidden supply before price starts to move up in the coming days/weeks.
Trade Plan: Traders tried to get short the last 55 minutes of the RTE CASH hour (from the previous day). Let’s see if CASH wants to get price up some more to sell into. It’s the last day of the week and the last day of the cycle. Who wants to go home short over the weekend?
It’s summertime trade. The delta variant does not seem to phase the bulls or bears. The FED has said their peace. All news that is news has been released.
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Baxter: Bad week for AI trading.
Baxter is our emerging AI product. As we build out our datasets and refine, we will begin tracking real-world AI market predictions. Today’s OHLC prediction is influenced by temporal data (Day of week, year ..) and the OPEX cycle. Baxter is not very smart yet, but he should get better. Here is what he thinks will happen today. This is SPX index, not futures. You will need to add today’s fair value (-8.55 ) to the data to adjust.
We will also get better at presenting Baxter’s thoughts.
We are retraining Baxter on predicting opening gaps better and are working on a new version that runs post-open to re-predict the highs and lows. That will be a couple of more days. We are also working on calling the hour for the high and the low of the day so we can predict the day as an OHLC or OLHC sequence. If you have ideas we would love to hear them!
Chart of the Day
FANG+ index fails to reach records along with FANG stocks
Records were set by two of the four FANG stocks — Amazon.com Inc. and Google’s owner, Alphabet Inc. — on Wednesday. A third, Facebook Inc., traded at a new high the day before. Yet, the New York Stock Exchange’s FANG+ Index, which tracks the three companies and Netflix Inc., has been stuck just below a Feb. 16 record since last week. That’s largely because the index also includes China’s Alibaba Group Holding Ltd. and Baidu Inc., which have dropped as their home country cracks down on companies listed elsewhere. A FANG-only gauge climbed 12% from the day FANG+ peaked through Wednesday.
Our View
A Quiet Yet ‘Friday Funday’ as the Markets Bounce Back
As a futures trader, my eyes are always glued to the S&P 500 futures and Nasdaq futures, — the ES and the NQ — but they are not the only game in town. In today’s high-flying world of index trading, the Russell 2000 futures — RTY — has become front and center in the ‘stock rotation’ world, but this story is not really about which index I like to trade. It’s about the Chicago Board of Options volatility index, the VIX.
As I told the PitBull a few days ago; no human can catch every headline or move and if it is possible, it’s an algo or HFT trading system. The PitBull came back saying something about you can’t beat the “Vinnie Viola’s from Virtue” — they only had 6 losing days! No, as retail traders we do not make money every day, but we are always up for the fight.
When I saw Jon Najarian on CBNC at 5:00 am yesterday morning, he was asked why the markets were down. To me the answer was easy, but he could not come up with any real reasons. Well, Dr. J, I’ll tell you why the indices were down so much.
The ES reversed overnight and as the DAX, CAC, and FTSE weakened, the ES accelerated lower. The clue in that sequence was the VIX, which traded down to $15.73 on Tuesday and started to drift higher as the ES continued to make several record-high closes. Put simply, the ES has been up 10 out of the last 12 sessions, was overextended, and sell stops had been building up under the 4230 level down to 4280 (4279.25 was the Globex low and 4280.25) was the day session low, so mission accomplished.
On the 9:30 futures open the ES traded 4292.50. By that point, support had already been set as we bottomed in the first hour of trading — again, near 4280 — and then caught a big bounce up to 4322.75. The NQ gave several 50-handle bounces off the 10-day moving average, which we talked about in yesterday’s Opening Print.
The ES had one more shakeout left in it, dropping back below 4300 in the final hour of trading before reversing higher and closing at 4313, down 0.84% or 36.75 handles.
In terms of the ES’s overall tone, most of the selling was done before and in the first hour of the day. In terms of the day’s overall trade, volume was the highest in several weeks at 1.96 million.
Our view, it should be quieter today. If you were surprised by yesterday’s selloff, you shouldn’t be, it has been a long time coming. But it’s a good learning opportunity in risk management and position sizing. It’s also a good lesson in patience.
As the markets move into July, my guess is more people take time off. There is a process the ES “has to do” to continue higher and that’s sell-off. Whether it’s a 1-day selloff or a 10-day selloff, it’s how the S&P rebuilds its buying power. The short sellers push the markets down, the crowd gets short, then the selling dries up. Next, the ETFs and mutual funds start moving money into the rotation and then comes the big short squeeze. I know it all sounds so easy.
My end-of-the-year forecast for the ES was ES 4400 and then I raised it to 4600. Everyone on Twitter and the people that take the premium Opening Print know it too. Yes, I am bullish, but I’m also what I call a cautious bull. What happened yesterday is what I call a micro mini-crash. Someone on Twitter mentioned if the S&P dropped 50 points in one day it would shock people and I agree but now 60 to 100 handle swings from a Globex high or low is not unheard of and with the VIX moving like it has the last few days and the futures dropping so fast, it could be a preview to how the summer goes.
Our Lean: The markets held where they needed to and are now getting a bounce on Friday morning. Let’s see if there are any shallow morning dips to buy. Otherwise, let’s not do anything too risky ahead of the weekend and after a volatile Thursday session.
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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