Tuesday’s Session was Cycle Day 3 (CD3): Price declined to projected range level (4512), where buyer’s responded. Participation is subpar as traders remain on an extended holiday. The range was 34.50 handles on 1.090M contracts exchanged.
…Transition from Cycle Day 3 to Cycle Day 1
This leads us into Cycle Day 1 (CD1): Average Decline is in place (4512.50), but price momentum favors a probe lower before the next cycle rally develops. As such, estimated scenarios to consider for today’s trading.
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Baxter is our new AI trading helper. This data is early, new, and not very well tested but we want to share some of our findings. We are concentrating on the SP500 which should benefit ES futures and SPY traders.
Yesterday Baxter thought the high for the day was likely to come in the last 30 minutes of the day. He was wrong, the high was in the opening minute. The low call for the day was a morning low and most probably in the first 30 minutes. The morning call was correct but the low came in 10 minutes after 10:00 missing the opening 30-minute slot. We award half a bone to Baxter for calling the low and while the afternoon prices gallantly charged toward a high, it ultimately failed at 14:00.
Baxter is calling for the high to come in the last 30 minutes of the day with about 60% certainty. He gives the 10:00 to 12:00 slot a 30% probability of having the high and the opening 30 minutes and the 12:00 to 15:30 slot he is calling unlikely.
Low calls continue to be elusive to our models with low percentage probability. Baxter is pretty sure the low will not come in the final 30 minutes of the day, assigning a 10% probability to that occurrence. The other three time slots are assigned about 30% probability each with the 10:00 to 12:00 slot having a slight edge with just over 30% so that is Baxter’s pick by math.
Chart of the Day
S&P 500’s elite eight-month gain leaves final four unsure
Where might the S&P 500 Index be headed after rising more than 20% in the first eight months of this year? The U.S. equity benchmark’s history suggests one possible answer: anywhere. There have been 10 other years in which the S&P 500’s gain through August surpassed 20%, according to data compiled by Bloomberg. The final four months of those years brought everything from a 21% advance to a 32% decline. All this left the S&P 500 with an average loss for the September-December period of 2.1% — and a median gain of 2.2%.
Following the holiday on Monday, we were back in action on Tuesday. However, that doesn’t mean the bulls had a field day. Instead, stocks found selling pressure right out of the gate, with the exception of the Russell.
Shortly after the open, the Nasdaq was showing some nice relative strength as it tried to hold up throughout the session. FAANG did the heavy lifting there, but the ES was a laggard.
The ES opened for trading at 4530.75, less than 2 points above the Globex low. That mark was quickly taken out within the first few minutes as the ES traded down to 4510.75. After chopping around 4510 to 4520 for about an hour, the ES popped higher and ground its way to 4527.75 just a few minutes before 4:00.
An hour later, the ES closed the 5:00 window about 10 points lower, near 4517, and finished the session down 34 basis points.
There’s been a lot of talk about the “two-week” roll in September, where volatility can pick up and the choppiness can increase ahead of the quad-witch expiration later this month. Sometimes that chop and volatility is an opportunity — other times it’s a risk.
Learn what fits your trading style and try to avoid the pain if it doesn’t fit this environment.
Our View: On Tuesday, we talked about the 4515 area as support and the 4540 area as resistance. Well, Tuesday’s Globex session had a high of 4545, before this area again rejected it. The low of 4510.75 was a bit below our support area, but the ES eventually bounced and held this zone.
We have a “bend but don’t break” trade going with the ES right now, where support is being strained but technically holding on by a thread. Just look at Wednesday’s session so far as the Globex low dipped below 4500, but as the ES currently trades near 4520 as of 7:30 ET.
The 10-day moving average near 4510 is going to be an important area to watch, as is the Globex low at 4497. A failure to hold the former puts the latter in play, and should the ES fail to hold 4497, then the 21-day moving average and former high near 4477 could be on the table.
Our view is simple: we continue to look at the trend that got us here, but realize the ES looks tired and a little vulnerable. We want to buy the dips, but will they be shallow or will they be deep?
Right now we’re working on the third straight down day in the ES, so if bulls can take out and sustain a move above the Globex high near 4525, we could see a push higher. Otherwise, see how it handles yesterday’s low and the 10-day moving average.
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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