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Market Review

NJ – Discovery Trading Group

As a day-trader, it’s useful to keep an eye on the bigger picture to help frame how you want to trade.  For today’s Opening Print, I’ll take a look at the ESM20 daily chart and technically assess where it stands and what it may do over the next couple of days.  Monday was a strong uptrend day and the US session close puts the S&P 500 e-minis at a 40% retracement from the Feb 20 high and Mar 23 low. Nothing technically significant in the 40% other than the market is recovering.  The ESM20 is now up against some significant technical resistance in the 2665/75s area after a low failure of the 2174 Mar 23 low. If the ESM20 can clear the 2665/75s area, that is a bullish sign and we should see the ESM20 reach the 2800, probably this week.  The area between 2700 and 2800 traded relatively light volume the last time through. This often leads to the scenario where price quickly “skates the lake” and then backfills the area over a few days which we call “pave the cave”. In other words, if the ESM20 can get into the 2700s, it’s probably going to the 2800s and will work the area between for a few days, possibly more than a week. 

There is significant resistance expected in the mid-2800s and by the time price reaches the area, the ESM20 200-day moving average could become a bullish obstacle.  It most likely will take several attempts to move through as a fight is expected at the bellwether bull/bear indicator. It would be a major coup for the bulls to get back above the 200-day MA. 

If the low failure does not hold, (i.e. the 2424.75 Apr 2 low is cleared), then a resumption of the downtrend will begin and the 2174 Mar 23 low should be retested and most likely probed.  Another downtrend leg will likely ensue. Thus, for the bulls, it’s critical that the 2424.75 low continues to hold as support. 

Volatility continues to shrink as the ESM20 tries to push higher.  The 5-day average true range (ATR) has gone from 272 points at its peak to 116.50 points on Monday.  That’s a 57% reduction. Now a 116.50 ES points range per day is still very high, so there’s plenty of day trading that can be had but after the last several weeks of extreme volatility, the market seems much calmer now.

Below is a chart to help visualize the support and resistance and prices mentioned above.  Thanks again for reading. For more information on how DTG can help your trading, visit us at DiscoveryTradingGroup.com


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Globex

(ESH20:CME) GLOBEX Session(ESH20:CME) Day Session 
High 2586.75Opening Print: 2575.25
Low: 2478.00High 2668.50
Volume: 400,000Low: 2564.00

ES Settlement: 2645.00


Total Volume: 1.93M

S&P 500 Futures; Up 164.75 Handles Or +6.64% On The Day

Monday

The ES rallied up to 2568.75 on Globex and opened Monday morning’s 8:30 CT futures open at  2575.25. After the open, the ES initially rallied and then sold off down to an early morning low of 2564.00. After the low, the ES skyrocketed higher. The premium levels between the #ES and S&P futures were ‘wide’, in most cases when that happens it means there is stock buying under the surface. It also means index buy programs. After a ‘few small’ 6 to 12 handle pullbacks, the ES followed with a new buy program and a new high. For the most part, it was straight up late on Friday, straight up on Globex and straight up during the day session. 

At 2:00 CT the ES traded 2623.50, traded 2620.00 at 2:30 and traded 2637.25 as the 2:50 cash imbalance showed $6.6 billion to buy. On the 3:00 cash close the #ES traded  2644.75 and settled at 2645.00, up 164.75 handles or up 6.64% on the day. 

In terms of the days’ overall tone, it was an all-day buy fest. In terms of the day’s overall trade, total volume was still LOW at 1.93 million contracts traded with 400,000 coming from Globex making the total day volume the lowest in several weeks at 1.53 million contracts traded on the day session.

Our View

MOC BUY $6.6 BILLION

The ES has rallied 494.50 handles from its 2174.00 set on 3/23  low in 11 sessions. Right now it doesn’t matter if you think the ES is going back down to the lows because it’s in an uptrade. How long will it last? I am not sure but what I am sure about is if you’re not long, don’t short it. When the premiums between the ES and the S&P 500 cash ‘widen’ like they did early yesterday it generally means two things 1)  a trend day and 2) the guys with the better seats have ’em to buy. I only remember a few times when we saw over $5 billion to buy or sell MOC but we have had two $6+ billion buys recently. When the public says they are not buying that BS, the mutual funds always have some money allocated to buy when the markers dump. It’s called dollar-cost averaging or buying at regular intervals and in roughly equal amounts. While dollar-cost averaging can be painful when the markets are crashing it’s a  powerful tool in a bear market. It allows the investor to purchase stocks at low points when most investors are selling or are afraid to buy. Only time and the news will tell how long this rally will last but until then the S&P looks like it wants to go higher.

Our view, JP Morgan and Chase & Company said yesterday that he is expecting ‘a bad recession’ and also said the bank will not request looser regulation during the pandemic. In his annual letter published yesterday,  Jamie Dimon said the work preparing JPMorgan to be a “port in the storm”, a long obsession of his means the bank can handle what he expects to see “a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008”. I sure hope he’s right but my gut feeling is we have not seen anywhere near what is going to unfold over the next 6 to 8 months. Our lean, while we can not rule out selling a rip or two, we still think the ES is going higher. I have 2680 to 2720 as a possible upside target today. The S&P closed just above the long term swing point of 2641.00, this is 38% of the break from the all-time high and the 1×1 angle from the Dec. 2018 low. It must now stay above this level to give us an upside target of 2930.00, this is 61.8% back to the all-time high and the 1×1 angle from the 8/6/2019 low. Failing to stay above it, or trading above it tonight/tomorrow and closing below it sets up a possible run at the lows again. The theory is the same on a 38.2% retracement whether it’s a 50 handle range or 1200 handles.

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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Danny Riley (3544 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


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