***Written 8 pm Tuesday evening for Wednesday’s trading for contribution to MrTopStep’s “The Opening Print” publication.
Tuesday’s Session was Cycle Day 3 (CD3): Price oscillated throughout the full session creating an “inside-value” normal variation day. Resistance was at 3895 (Line-In-Sand) with Support at 3865 (Overnight Low). Range was 41 handles on 1.598M contracts exchanged.
…Transition from Cycle Day 3 to Cycle Day 1
This leads us into Cycle Day 1 (CD1): Part of the decline is in-place with the CD1 Average Decline measuring 3850. As such, there are two estimated scenarios to consider for today’s trading.
Small MOC but the market wanted to sell off and from 14:00 until the close it was a volatile swing down with a 10-point counter move. These are hard markets to hold for trend, but the committed would have had a nice 30-point move to the downside. The actual 15:50 MOC imbalance was just -433M with a buy-side lean so the selling was more about the market than the close.
Looking around the world at new cases per million we see the US and UK in an improving situation with Czechia and Serbia fighting another wave along with Sweden. Covid fatigue is setting in and some, like Texas, are just throwing in the mask.
Wear your masks! Stay at least 10 feet behind someone wearing a mask! (Particularly in a checkout line) Stay home! Take your Vitamin D!
Chart of the Day
An almost year-long surge in U.S. stocks is due for a pause about now, according to Ryan Detrick, chief market strategist at LPL Financial LLC. “History would say be open to some type of weakness or consolidation,” Detrick said in an LPL blog post Friday. The post cited the S&P 500 Index’s performance after bull markets that began in 1982 and 2009, the two fastest starters before the current advance. Both rallies faltered near the one-year mark, and the S&P 500 was little changed to lower six months later.
After a 39.25-handle overnight range, the S&P 500 futures opened Tuesday’s regular session at 3900.75 and traded the daily high of 3903.50 on the open before sellers took charge, pushing the index futures lower throughout the early morning down to 3868.25 just after 10:30 CT. Buyers came in at that point giving life to equities that would last through the rest of the morning and into the noon hour when the ES hit a lower high of 3900.00 just before 1:00. The afternoon gave way to sellers who would manage to push the markets down to a new low of day, printing 3865.50 just before 3:00 before settling at 3872.75, down 29.50 handles on a total volume of a solid 1.6 million contracts traded. In terms of price action, it was all about selling the open, buying the midmorning low, then selling the midday high, and covering near the close.
While the S&Ps would close lower, the trend resumed of a firmer large-cap index compared to the Nasdaq which closed down 1.6%. For the ES, it has been hard to get a higher close lately and very rare for a two-day winning streak which hasn’t happened since the first week of February.
S&P Falls After Mondays Big Rally
The S&P Futures (ESH21:CME) that sold off hard and rallied 99 handles on Monday propelling the futures to its best day in nearly nine months, opened lower on Tuesday, sold off in the early goings, rallied hard and then sold off down to new lows on yesterday’s close. The fresh optimism from Monday faded Tuesday sending all three major indexes lower. The yield on the 10-year note fell from 1.444% Monday to 1.413%, down three consecutive sessions in a row but that didn’t seem to matter when the late-day sell programs started hitting.
There was a story floating around out of Zero Hedge that JP Morgan is looking for 675,000 jobs on Friday. I have a feeling that we are going to see a large jump in non-farm payroll but I’m not sure about the 675,000. The other thing is the senate democrats are trying to iron out a deal on the $1.9 trillion Covid-19 aid package. I may be off on my call for new highs in the S&P right now but if that bill gets passed the futures will go up so fast you won’t know what hit you.
Our view, it was a big false start yesterday. The early rally shook out some shorts then slowly decayed. It’s been odd, $2.5 billion to sell on the last trading day of February and then back-to-back sales Monday and Tuesday. I have a trading rule I often forget about that says after a big rally the ES goes sideways to down, so while my early call to sell the rallies and buy the pullback was correct yesterday, I didn’t have the late-day reversal. Our lean, my plan was for a big rally Monday and a small up yesterday and then a big rip going into the end of the week. I still feel that way. Sell the early rallies and buy weakness with the idea that there could be another drop this morning.
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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