Premium OP: China, the weight of the world

on January 28, 2020

Market Review

The Discovery Trading Group

The S&P 500 e-minis (ESH20) opened gap down 24 points on growing coronavirus concerns and continued down through Globex to open the US cash session down 56.75 points, putting the index squarely in short-term bearish territory. This could have been the start of a nasty down day, but the bulls came out at the US cash session open and provided some buoyancy. However, they did not overcommit and the ESH20 spent the morning working a 13-point range and then spent the afternoon working about a 7-point range just above. President Trump’s impeachment trial remains a market wildcard and the likelihood of calling witnesses increased which kept a damper on the bulls.

Here’s a look at how the ESH20 unfolded against our support and resistance levels.

Thanks for reading and have a great trading day!

Join in the fun.

Closing Prices

In the Tradechat Rooms

The MiM

Buy the open, sell the close. When fear rises, retail runs and that means redemptions and fervent rebalancing. That happens going into the close. Selling was initiated into the close around 3:20 pm today, while the MIM was signaling 1.3B to sell. The imbalance paired away, but the actual reveal was 2.1B to sell. And down we rode into the close.

Along with our MIM, the HFT program detector was very busy today. We had 26 programs, 7 were buys and 18 were sells. Definitely the theme of the day.

Economic Calendar

Government of Bigeng Considering More Drastic Measures

Globex

GLOBEX Session	Day Session
High: 3269.00	Opening Print: 3237.00
Low: 3235.00	High:
Volume: 686,000	Low:
	ES Settlement:
	Total Volume: 1.8 M

Chart of the Day

Our View

S&P 500 Futures Telltale: Globex Volume

Despite all the bad news, there is one thing that traders should never overlook when it comes to trading the S&P 500 futures (ESH20:CME) and it comes in the form of overnight Globex volume. Nearly 700,000 (ESH20:CME) futures traded before Monday’s 3237.00 8:30 CT opening print. After trading down to 3233.00 in the first minute of trade the futures started to uptick initially trading above the 3253 area and then pulled back to 3240.00. The ES then rallied back up to the 3250 area, back and filled at the 3246-48 area and then traded up to a new daily high at 3257.75. After the high, the ES sold off down to the 3248 level and then rallied up to the 3256.00 level.

What I was trying to explain about the high Globex volume is that when the futures dropped so much with such high Globex volume it goes back to one of MrTopStep’s favorite trading rules. Whenever so much volume trades on Globex after a big drop it means three things: 1)most of the headlines news was already out 2) the selling power was used up and 3) that traders that sold at lower prices put in buy stops above the markets. I believe when this happens the algorithmic and HFT programs sense that people are off base and when the markets start to short-cover the bots start searching for buy stops.

After the 3256 high the ES got hit by a few sell programs that pushed the futures down to the 3244.00 level as the tick went to -1000 as the 2:00 MiM showed $1.2 billion to sell. At 2:30, the ES traded 3247.50, traded 3242.50 on the 2:50 cash imbalance, showed 2.1billion to sell, traded 3243.00 on the 3:00 cash close and settled at 3239.25 on the 3:15 futures close, down 51.75 handles or -1.57% on the day.

In terms of the ES’s overall tone, it was weak but a good share of the day was spent on short-covering rallies. In terms of the day’s overall trade, total volume was high with 2.5 million ES traded with 686,000 coming from Globex making total day trade volume 1.8 million.

Our view: I ended up buying the ES on the dip just after the open. Had I known that there was going to be nearly 700,000 ES traded on Globex my call would have been to buy the open. As I said above, when so much volume is traded before the 8:30 open it usually means all the selling was done overnight. I do not think the decline is over. The potential for the spread of the virus and the death toll is not. I know that the S&P tends to take bad news and make good of it but this is far bigger than our trading rule. Currently, the death toll in China stands at 80 with hundreds of new cases. In the United States, there are 100 cases being evaluated for the infection. The CDC is urging people to avoid nonessential trips to China. While most of the deaths, 76, were in the central province of Hubei, officials in Beijing (population of 21 million) reported its first death yesterday. And the mayor of Wuhan said there were about 3,000 patients in the city being treated for the virus. As I have always said, the S&P hates uncertainty and the prospect of further negative headline risk remains front and center. Can the S&P bounce? Sure, but the virus will overshadow. Our lean is for lower prices but we can not rule out short-covering rallies. Some traders are talking about ES 2900-2950 but I think we have to see a break below 3200 -3180 before we start talking 2900.00.

Earnings

Tuesday, Jan. 28th

Thursday, Jan. 30th

Friday, Jan. 31st

$CAT Caterpillar | BMO
$CVX Chevron | BMO
$XOM Exxon Mobil | BMO
$PSX Phillips 66 | BMO

Market Vitals Technical Analysis

Did you know that your premium membership gives you access to our Market Vitals. Click on the image below and get today’s key levels.

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.}

Categories:

Tags:

No Tag