PitBull’s Rule in Play: Expiration Thursday Weakness Hits Markets

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Our View

I knew there was a risk to Walmart’s earnings, given concerns that consumers were spending less. While the largest retailer in the U.S. met expectations, Walmart still fell 6.5% on weaker-than-expected guidance. Adding to the weakness was the banking sector, at one point, JP Morgan was down 6%, and Goldman Sachs fell 5%, though both ended the day down 4%. At its lowest, the DJIA was down over 600 points.

Am I surprised? Not at all. I kept mentioning the lower volumes, and after Walmart’s guidance spooked the markets just a day after the S&P cash made a new all-time high—it dragged the banks down with it.

One thing I totally forgot, but remembered as soon as I saw the indices down, was the PitBull’s trading rule about looking for a sell-off or low on the Thursday before expiration. According to the Stock Trader’s Almanac, the February expiration has seen the Nasdaq down in 14 of the last 21 occasions, and the end of February has been miserable in recent years. The week after the February monthly expiration has the Dow down in 15 of the last 26 occasions, but up in 8 of the last 14. In 2020, this week saw a 12.4% decline, making it the fifth-worst week since 1950. The first trading day of March has seen the ES up in 17 out of the last 25 occasions and March is historically strong early in the month.

Like I said, I’m not surprised by yesterday’s weakness, I think it was overdue. It seems like uncertainty took over, but today is a new day.

The ES didn’t hold the 6120-6130 level, but it did hold 6100 and had a few solid retests. My gut says we’re going back up, though we could see a lot of early sideways chop that ends up pushing the ES back up.

Our lean: It’s FRYday options expiration, so most of the volume should come in the final hour. I can’t rule out selling some rips, but I’m still looking to buy the dips.

Next week is a concern.

MiM and Daily Recap

The E-mini S&P 500 futures saw mixed price action throughout the session. The Globex session opened at 6153.75 and initially moved higher, reaching 6159.50. However, it couldn’t hold onto gains, reversing lower to print a session low of 6141.00 before settling at 6148.50, down 5.25 points (0.09%).

Just before the regular session got underway at 9:30 a.m. ET, the ES was trading at 6150.50. It dropped to 6083.50 at the open and continued lower for the next 30 minutes, putting in the low of the day at 10:00 a.m. at 6102.75.

Bulls rejected the low, and after another 30-minute rally, the ES pushed back to 6128, a change of 25.25 points or 0.41% from the low, setting up a choppy 17-point trading range between 6120 and 6103. A push down from 6123.75 at 12:42 dropped 14.75 points to 6109 at 1:24. From there, bulls took hold and drove the price up for the next 75 minutes to 6139.75, a change of 30.75, just 10 minutes before the close.

By the closing bell, the ES had settled at 6137.25, down 11.25 points (0.18%) from the open and down 25.75 points from the previous day’s 4:00 p.m. close. The final cleanup session showed continued weakness, with the ES closing at 6133.00.

Volume remained low, with 1.16 million contracts traded in the regular session and a total of 1.33 million contracts for the full session.

The Market on Close (MOC) imbalance data peaked at 1.6 billion dollars, but there was no significant symbol skew, and the market barely reacted. While the imbalance was present, it had little impact on the final trading moments, as ES held within its established range to close near 6133.00.

Overall, it was a mildly bearish session, with sellers maintaining control, particularly into the close. While there were intraday rallies, they lacked sustained momentum, and the market ultimately finished in negative territory.

How to read the MIM

Technical Edge

Fair Values for February 21, 2025

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Get instant access to our partners’ real-time market data and insights not available anywhere else. Here is last night’s Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

What’s Happening in the Market

The full positive gamma buffer was tested once SPX dropped like a rock into the VT from the open, stabilizing from there as puts eased their bearish assault after one hour.

The index flows were extremely choppy today, but from a bigger-picture perspective, this dynamic is a trend-breaker because it disrupts the [downward] momentum, just as a Put Wall usually does. This allowed for a bounce, but what in reality was sideways trading after a high velocity drop: SPY -0.42%, QQQ -0.42%, and IWM -0.96%.

6165 remains the most important [positive gamma] strike. This is not automatically because it is the JHEQX (JPM Collar) short call, but because our tools are measuring this fund’s call strike to be highly impactful right now. It also stands at the gateway of a snap melt-up to 6200, as the price can easily and swiftly slice right through that [red] negative gamma.

Other than that, what live [positive blue] gamma is telling us here (at the close) is that prices are highly supported above 6100, although with a 6117.52 close the price is still compressing the springs, waiting to see if it will bounce or fall through the trampoline. 

There was a rare and heavy disparity between index and basket flows today, but although with different shapes they were both guiding prices toward the center of the range.

The opening signal was extremely clear with basket flows, as calls peaked and then quickly dropped almost vertically. The taller and pointier these signals are, the stronger they are at inferring immanent pivots.

As this happened, shorts knew to wait for a material change in pattern (or momentum) before covering. Calls tried to bounce again, but HIRO quickly dismissed this as another low-conviction surge, as calls rolled over into heavy exhaustion, which was preventing prices from climbing meaningfully.

.Put flows also stabilized early, which set the stage for another end-of-day ramp, which has been a frequent event lately.

Switching to the index flows, as they complement each other excellently, they were a total mess today. But remember these are measurements – telling us that the index flows of the actual market were a total mess today.

The fact is that being a mess can still be important information: Call flows look like a seismograph here with a nonstop march of topping signals. And then after the initial put flush at 10am EST, put flows formed a base and refused to venture downward, therefore indicating correctly that the downward momentum from the opening drive was being forcefully interrupted.

In general, jumpy and indecisive flows are characteristic of choppy conditions because this breaks the inertia of trends.

Earnings Next Week

From green to red, this shows the lowest implied volatility (smallest implied ranges) up to red with the largest implied ranges.

Get instant access to our partners real-time market data and insights not available anywhere else. Here is last night Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

Trading Room News:

Polaris Trading Group Summary – Thursday, February 20, 2025

Market Overview & Morning Session:

Trade Execution & Performance:

Midday & Afternoon Session:

Key Takeaways & Lessons Learned:

A solid trading day with well-executed setups, disciplined risk management, and valuable lessons on market structure.

DTG Room Preview – Friday, February 141, 2025

Calendars

Economic Calendar Today

This Week’s High Importance

Earnings:

Full Calendars

Affiliate Disclosure: This newsletter may contain affiliate links, which means we may earn a commission if you click through and make a purchase. This comes at no additional cost to you and helps us continue providing valuable content. We only recommend products or services we genuinely believe in. Thank you for your support!

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!!

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

Fun, fun, fun! The ES and NQ are back and filling, it’s the end of January, T+1, and they rotated into the Russell while the Trumpster is slapping 25% tariffs on all products coming from Mexico and Canada and AAPL reported beats with record revenue of $124.3B and $2.40 earnings. If you are looking for some quiet time, I hate to tell you, but you may as well take a cruise ship to the Bahamas, sit your ass down on a pool chair, and start ordering some cocktails because 2025 is going to be the year of market chaos.

I do my best to not pull anything from the internet. That doesn’t mean I don’t pull some yield prices or check where Bitcoin closed, but I don’t EVER, ever have the TV on. I don’t care what anyone from Bloomberg or CNBC has to say. In fact, when I was doing my videos from the CME floor, a guy from Bloomberg asked if I wanted to go on. My response was, “Notta!” If these guests were any good at trading their own accounts, they would not have time to do it. Just look at Jon and Pete Najarian… where the hell did they go?

Trading is never going to be simple, but when you get your own methodology and it works, stick with it. For me, less is better. Jim M, who has been in the MrTopStep room since 2010, loaded my charts up with indicators and signals last year, and some of them would call the high and the low, but my head would spin with all the other shit he put on the charts. It would take me a long time to learn, if ever, and I just went back to my old ways of buy and sell imbalance and overbought and oversold and stuck with the number one rule: the trend is your friend. If you are fighting that, then you’re probably struggling.

Like most of the week, the ES and NQ were in buy-the-dips and sell-the-rips mode, but later in the day, the ES and NQ were not far off the highs when the headlines hit, saying Trump had placed a 25% tariff on Canada and Mexico, the US’s two largest trading partners, and that he was deciding whether to tax their oil. The ES sold off 30 points, and the NQ dropped about 150 points in less than 5 minutes, and oil rallied but ended up closing near the highs of the range. The ES settled at 6093.25, up 25.75 points or +0.42%. The high in the NQ was 21,747.75 and settled at 21,808.75, up 85.50 points or +0.40%. The YM closed up 175 points or +0.39%, and the big winner, the RTY, closed up 21 points or +0.93%.

After Powell’s press conference following this week’s Fed meeting, the Fed chair did his best to avoid talking about the effects of Trump’s tariffs and what they could do to rates and the economy. Is Saturday Trump tariff day? Powell said, “There are just too many variables, so we’re just going to have to wait and see.” Trump has been playing a game of wait and see, but earlier in the week, White House press secretary Karoline Leavitt told reporters that Feb. 1 appeared to be “still on the books,” and Trump himself said those tariffs (oil) are coming on Saturday. Last week, Trump was threatening Colombia, and Colombia started threatening back, but the two nations came to an agreement. Trump is a deal maker and clearly is using the tariffs as a negotiating tool. The logic behind this round is tied to getting Canada and Mexico to clamp down on the flow of drugs and migrants at their borders and the US trade deficits with the two countries, but knowing Trump, there are other reasons. I have no idea how this is going to affect the US economy, but he has been very straightforward about what he wants. He also wants lower rates. I’m not smart enough to figure this out, but we already know how the markets reacted to the December rate cut, and now is not the time for that. My lean remains the same as yesterday, if there’s a lower open, buy it. If we don’t get one and get a gap higher, you can give it a shot but this rally is not over. 6180, 6193, 6204, and 6220 are some levels I am looking at. On the downside, I think any 30- to 40-point pullback would be a decent entry.

Our lean: The last trading day of January, PCE, and the options expiration are on tap. I think the higher lows have been working on the upside, and we could see higher prices, but I also think there is all sorts of headline risk, which buying into those drops has worked nicely. I can’t rule out some two-way flow, but 6150 and new all-time highs are not far off. Remember, the trend is your friend.

MiM and Daily Recap

The ES futures opened the Globex session at 6068.50 and initially moved lower, finding an early low at 6086.00 at 5:20 AM ET before bouncing to 6093.00 at 5:35 AM ET. A second dip followed, reaching 6087.00 at 6:00 AM ET before buyers took control and pushed the ES to a Globex high of 6094.75 at 6:15 AM ET. After some consolidation, the market pulled back again, hitting a pre-market low of 6074.25 at 7:15 AM ET.

The regular session opened at 6089.50 at 9:30 AM ET and saw an early rally to 6109.75 at 9:50 AM ET, marking the session’s first significant high. However, sellers quickly stepped in, leading to a sharp decline that bottomed out at 6056.50 at 11:10 AM ET, the lowest level of the session. From there, the ES rebounded sharply, rallying back to 6093.25 at 11:55 AM ET before rolling over again.

A secondary midday low formed at 6070.25 at 12:25 PM ET before another push higher sent the ES to 6102.75 at 2:10 PM ET. The market briefly pulled back to 6096.00 at 2:30 PM ET before staging an afternoon rally, hitting the session high of 6116.25 at 3:20 PM ET.  Around 3:40 PM Trump’s press secretary reminded the world that Trump tariffs were still on schedule to hit on February 2nd and that sent the market tumbling about 50 points in less than 5 minutes.   The Bulls did not take it lying down and rallied back 40 of the lost points in 15 minutes into the MIM  at 15:50 which showed almost $2B to sell, with a bullish symbol lean.  The ES showed resilience, closing the cash session at 6099.25, up 31 points from yesterday’s close, gaining 0.51% on the day.

In the end the ES and NQ were up, down and all around. In terms of the ES and NQ they were firm and seemed to be trying to back and fill. In terms of the ES’s overall trade volume was in line with the last two weeks at 1.57 million contracts traded.The yield on the 10-year note declined to 4.515% and Bitcoin settled at $105,092 up 1.26%.

How to read the MIM

Technical Edge

Fair Values for January 31, 2025

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Weekly Breadth Data 📈

Guest Posts:

Get instant access to our partners’ real-time market data and insights not available anywhere else. Here is last night’s Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

Futures are +50bps higher, pressing the SPX to 6,100.

AAPL is +3.8% to $246 after earnings.

Resistance: 6,120, 6,150, 6,200

Support: 6,050, 6,020, 6,000

With the SPX tagging 6,100 this AM, our sights set on 6,120 – 6,150 as the next major high. A move over 6,100 is significant, as it implies that longer term (and therefore more stable) positive gamma in invoked. You can see this in our base gamma curve below, wherein absolute positive gamma (supplied by total calls) peaks into 6,200. This, vs the transient 0DTE contracts that have been supplying the bulk of positive gamma.

To sum it up, this positioning likely leads to a decline in realized volatility, which further supports SPX prices. It also likely means that vol is actually going to decline, which we flagged yesterday as not having yet happened.

Our gut here is that we are about to enter into a “blow off” top.

Lets review:

“StarGate” led to an AI chase last week, and that bubble was violently popped by the DeepSeek news. However, we believe (and the evidence shows) that the violent drop on Monday was a function of the extreme overbought conditions into Friday (i.e. huge call buyers got stuffed hard + leveraged ETF unwind).

You can see on the bottom left Monday’s (1/27) nasty -16% decline in NVDA, and correlated ~3% drop in QQQ, followed by the sizable rebound on Tuesday (top right, 1/28). The argument here is that equities can “leave NVDA behind”.

The 1-year correlation between NVDA & QQQ is 74, as NVDA is a top 3 weight in the SPY/QQQ. Compare this to TSLA or AAPL, which have correlations near of 50. The idea is that NVDA can simply become part of the pack, as opposed to the leader.

On this point, now that the dust has settled, traders appear to be seeing DeepSeek as an “NVDA problem” and not a “market problem”. Plus, yields are very quiet after Powell, which is an “all clear” for short term buyers. With that, SPY & QQQ are within ear-shot of all time highs. The DeepSeek spasm did create a dip in non-NVDA stuff to buy, and so now we are seeing that buying translate into upside momentum.

Look at the 1-week performance of DIA & IWM, wherein NVDA & chips are not really a factor – DIA barely went negative on Monday.

This creates a “musical chairs” problem.

Shown here is COR1M – the CBOE correlation metric. It models the correlation between 1-month IV’s in the top 50 US stocks vs the SPX IV. When it declines sharply, we see it as a signal that bubble conditions are forming.

This was a huge point of discussion into July ’24, as NVDA and the chip sector freaked out to the upside. That led to this correlation metric breaking 2017 lows and setting the stage for the August VIX explosion.

As you can see, this correlation metric is back below 2017 lows. We reference 2017 as it contained the lowest realized volatility (RV) ever in the SPX of ~3.5% (1-month RV). Additionally, this COR1M metric never came close to those 2017 lows until July ’24.

Today’s 1-month RV at 14%, is much higher than 2017, but the fact that COR1M is lower (near record lows) given the higher RV (and recent market drop) is interesting. One would expect correlation to snap higher into a major selloff, but again, this is a rotation so correlation is instead plunging to lows.

The idea here is that these correlation lows are signal of bullish impulses – impulses that generally conclude with a sharp equity correction which results in all equities selling off, and correlation snapping higher. There is no set trigger for this to happen, and until it happens equities can rock higher (thus the “musical chairs” reference).

We quickly compared COR1M to the SPX (purple) below, and you can see that on approach of 2017 lows (black dotted line) the SPX seems to respond with a sharp drop. You can even see this happened at the start of Jan, when NVDA tagged 150 into the CES conference off the back of massive call trading.

The summary here is that we have our toe in the bullish waters, trying to ride the wave while aware that a bubble can be blowing. From our chair the near term catalysts are NVDA earnings + Feb OPEX, but we will also be weary of macro prints like NFP (2/7) or CPI (2/12).

Get instant access to our partners real-time market data and insights not available anywhere else. Here is last night Founder’s note getting you ready for today’s market and explaining the constraints in yesterday’s market. – MrTopStep

Trading Room News:

Polaris Trading Group Summary – Thursday, January 24, 2025

Market Overview & Early Session:

The overnight session hit both upside (6095-6105) and downside (6055-6045) targets with precision. A key pivot level at 6075 was identified as the “Line in the Sand,” aligning with the PTG Daily Trade Strategy.

For the bullish scenario, holding above 6075 targeted 6095-6105. For the bearish scenario, dropping below 6075 targeted 6055-6045.

Morning Trades & Execution:
Crude Oil (CL) OPR long trade successfully scaled two targets, and all upper targets were hit.

In ES and NQ action, early MATD rhythms were anticipated and played out. Buyers aggressively raised bids, pushing price action higher. The NQ rejected a key level (D-Level), leading to quick moves back down. An objective was fulfilled at 21,500 before price quickly reversed.

Midday Review & Lessons:
PTG David emphasized focusing on a single pattern and perfecting it for consistent success. The DTS plan unfolded flawlessly, with a retest of CD1 low (6054) before a sustained rally.

A dip below VAL (6064.50) and reclaim provided a PKB long structure opportunity.

Afternoon Volatility & Tape Bomb:
Market maintained MATD range day rhythms, with the best trades occurring at range extremes.

At 2 PM, the “Shake n Bake” move led to a bullish push into the final hour. The prior high at 6111.50 was tagged, setting up for a potential breakout.

At 3:38 PM, Trump announced 25% tariffs on Canada and Mexico, triggering a rapid sell-off. Markets plunged and then snapped back 25 handles just as fast.

A final reminder from PTG David: Always use hard stops—no such thing as a “mental stop.”

Closing Thoughts:
The session saw precise execution of strategy, with multiple opportunities in ES, NQ, and CL.

Key takeaway: Stick to high-probability setups and be prepared for sudden market-moving news.

The 2025 trading landscape remains volatile—fasten seatbelts and trade accordingly.

HAGEE. 🚀

DTG Room Preview – January 31, 2025

US stock indices closed higher on Thursday, digesting big tech earnings, though the session ended with some uncertainty after former President Trump hinted at a possible 25% tariff on Mexico and Canada. This pushed gold to record highs above $2,800/oz.

In tech news, it was revealed that DeepSeek used Nvidia’s H20 chips, designed specifically for China, raising concerns among US lawmakers who may impose new restrictions. Japan is also considering export controls on chips sold to China, which China’s Ministry of Commerce warned could harm business relations. Meanwhile, both Meta and Microsoft acknowledged DeepSeek’s efficiency improvements and said they could benefit from similar innovations.

OpenAI is reportedly in talks with SoftBank for a $40 billion funding round, which would value the AI giant at around $300 billion—double its valuation just months ago. OpenAI also plans to invest in Stargate, a $500 billion joint venture with Oracle and SoftBank that was recently announced by Trump.

Apple shares jumped over 3% after beating earnings expectations, despite lower iPhone sales and declining revenue from China. Several analysts had downgraded Apple before the report. The company plans to release new products, including an entry-level iPhone SE, new iPads, and MacBook Airs.

Premarket corporate earnings today include Chevron (CVX), ExxonMobil (XOM), Phillips 66 (PSX), ABBV, AON, BAH, BR, CHD, CL, BEN, LYB, NVS, RBC, RVTY, SNOW, and GWW.

On the economic front, key reports include the Core PCE Price Index, Employment Cost Index, and Personal Income & Spending at 8:30 AM ET, followed by the Chicago PMI at 9:45 AM ET. Fed Governor Michelle Bowman is also scheduled to speak at 8:30 AM ET.

Market volatility remains steady and elevated, with the ES 5-day average range at approximately 87 points. Whale bias is leaning bullish heading into the 8:30 AM ET economic releases, though overnight large trader volume has been relatively light. The ES continues to grind higher within both its short-term and intermediate-term uptrend channels.

Calendars

Economic Calendar Today

This Week’s High Importance

Earnings:

Full Calendars

Affiliate Disclosure: This newsletter may contain affiliate links, which means we may earn a commission if you click through and make a purchase. This comes at no additional cost to you and helps us continue providing valuable content. We only recommend products or services we genuinely believe in. Thank you for your support!

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!!