Market Review
Polaris Trading Group: Taylor 3 Day Cycle Commentary
Author: David D Dube (PTGDavid)
Tuesday’s Session was Cycle Day 2 (CD2): Bullish Open Gap propelled price higher to the approximately 50% retracement zone from daily “peak–to-trough”, at which time price oscillated widely throughout the session. Failure to hold 2710, which was our stated Key “Line-In-Sand” price level, opened the trap-door for afternoon decline, as sellers took profits and most likely established newly minted short positions.
…Transition from Cycle Day 2 to Cycle Day 3
This leads us into Cycle Day 3 (CD3): 3 Day Cycle Objectives have already been fulfilled and exceeded. As stated above, sellers likely unwound longs positions from lower cycle entry levels and have perhaps established newly minted short positions. As of this writing, (Tuesday 7 pm) price is trading above CD2 RTH Low (2634.75). Downside Violation Levels measure: 2610…2601 – 2588.25 zone. IF price holds prior low, THEN retracement objective measures 2660 – 2672 zone.
Average Range for Cycle Day 3 = 106.50 handles
Link to access full Cycle Spreadsheet >> Cycle Day 3
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MiM
Can you look at the chart above and without looking at the table guess which way the imbalance was on the market close? We raced up to the 3:50 pm reveal time only to be fooled with a decent 2B to sell imbalance. We had some happy MiMmers yesterday.
Today I will have our new Nasdaq data and S&P breakout available. It is a work in progress but we should be moving toward even better data to trade from.
Questions? Please email me: Marlin@mrtopstep.com
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Globex
| (ESH20:CME) GLOBEX Session | (ESH20:CME) Day Session |
| High 2745.00 | Opening Print: 2575.25 |
| Low: 2623.50 | High 2750.00 Early |
| Volume: 570,000 | Low: 2634.75 Late |
| ES Settlement: 2644.00 | |
| Total Volume: 2.42M |
S&P 500 Futures: ETF Tech Selling Weighs On The S&P
Tuesday
The ES rallied up to 2745.00 on Globex and opened Tuesday morning’s 8:30 CT futures open at 2739.75. After the open, the ES rallied up to the day high at 3750.00 and that’s when the Nasdaq futures (NQH20:CME) started to turn. The ES got hit by several sell programs in the first part of the day but when this 12:40 headline hit the tape it only added to the weakness of the markets: ‘CDC reports total coronavirus cases in the US rises to 374,329, +13% d/d (prior from 330,891, +8.5%); Total deaths 12,064 v 8,910 prior, +35% d/d v +17% prior’. From that headline, it was one downside stop run after another.
At 2:00 CT the ES traded 2665.75, traded 2657.00 at 2:30 and traded 2690.00 as the 2:50 cash imbalance showed $2 billion for sale. On the 3:00 cash close the #ES traded 2651.00 and settled at 2644.00, down 3.5 handles or -0.13% on the day.
In terms of the day’s overall tone, the ES was held hostage on the constant Nasdaq sell imbalances. In terms of the day’s overall trade, total volume was a bit higher at 2.43 million contracts traded minus the 570,000 from Globex making the total day volume 1.86 million contracts traded on the day session.
Ned Davis Research
To get a sense of where my head is at I think this post from Monday sums up how we see the current price action of the S&P. I know its a repost but its something we all need to consider:
According to strategists at Ned Davis Research, ‘The steep decline that brought the Dow down 37% from a record resembled a ‘waterfall decline’, marked by persistent selling over weeks, surges in volume, and a collapse in confidence. While no two scenarios are the same, usually such fast falls see the lows tested again”. And of 13 similar plunges since 1929, nine of them saw the Dow break the initial lows. And of the four instances in which the benchmark didn’t fall to fresh lows, it at least retested the bottom in three of them. The only exception was the most recent case: December 2018. Strategist Ed Clissold wrote “we caution against recency bias, the temptation is to breathe a sigh of relief that the waterfall is over and jump back into the market. History suggests that a more likely scenario is a basing and testing period that includes a breaching of the waterfall lows.”
If we know one thing and only one thing it’s that kick-starting the US economy and getting people back to work is going to be a long and difficult process. My cousin runs the commercial property division at one of the largest US cellular phone companies and he said his office will ‘not honor any unsigned property purchases or unsigned lease agreements’. He told me that in some cases the company would pay up to 20% over the estimated per-foot cost for hot locations. Yesterday he said out of an estimated 105 new stores in 2020 the number has dropped down to 30 and most of those locations are either open or still under construction. There are a lot of questions… How many industries will adapt to having people continue to work remotely? How many bars and restaurants will not open again? Who is going to want to travel / vacation in hot tourist spots? Some say I am too negative but I do not think so. We live in a new reality and it’s one we need to adapt too quickly.
Our View
Pops & Drops
President Trump said we are going to see some terrible things in the next 10 days. I personally think Trump is trying but he came late to the party. My question is did the democratic impeachment draw attention away from the day to day running of the government? I think it did but I am not sure the COVID19 virus wasn’t already spreading. This was the gift from the Chinese that keeps giving.
Our view, you have to trade the pops and the drops! From the ES’s 3397 high to the 2174 low the future dropped 1,220 handles, half way is 660 handles or 2147 + 660 = 2834.00. Now, I am not saying it’s going there but it’s a nice round number that should be on your radar. Currently, the overall price action is to fade the big drops and pops. I know I said higher prices yesterday, I called 2680-2720 trading 2740 early. The PitBull said that some tech stocks are up over 50% from their low.
Our lean, if the ES gaps down hard I would lean to buying the early weakness and on the flip side if it gaps sharply higher I want to sell the open or sell the first rally above the gap up. If neither occurs I will just be patient but ideally sell the big rips. Lastly, my gut says things could get weak going into the end of the week, I can’t rule out a late Friday rip but I doubt many will want to be long over the three day weekend. The virus numbers are set to increase sharply over the next several days and I don’t think that will be friendly news for the Spoos.
Danny Riley is a 39-year veteran of the CME trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.
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