The closing bell rang in Chicago at 3:15 CT. On the second to the last trading day of the second quarter of 2014 the S&P (SNP:^GSPC) managed to eke out another small gain. After another small scare to the downside on Thursday the S&P opened lower Friday morning and did what it does best; it rallied. Whether you’re in the gold souks of Dubai or a farmer in India the trading rally never stops.
Overall Price Action
As the markets go into the final trading day of June and the end of the second quarter they seem to be in the exact same mood they have been in for the last three years. It doesn’t matter if its a 17-handle drop or a 57-handle drop the S&P (CME:SPU14) always manages to land on it feet. While your charts are one of the best ways to follow the S&P futures it also helps to have a “feel” for the markets.
The Russell Rebalance (^RUT)
When Art Cashin from UBS went on CBNC he didn’t actually say buy or sell but he did say there were “rumors” of $40 to $50 billion going into the market both on the sell side and buy side. He went on to say if people have stocks they follow, to put in some “bids” if things get silly.
To the traders of the MrTopStep trading room that was interpreted as a possible sell and I have to agree after watching the video.
But—and there are always buts when it comes to trading—when I saw the negative flow in the room I had to offer a rebuttal:
iceChat (06/27/2014 – 12:46:55): (driley) RL rebalance got everyone thinking big for sale; going to be paired off
iceChat (06/27/2014 – 13:03:04): (driley) not going down
iceChat (06/27/2014 – 13:07:03): (driley) nice rip… all thin to win
iceChat (06/27/2014 – 13:20:09):(driley) all the sellers do is refuel the buy stops
iceChat (06/27/2014 – 13:20:57):(driley) there is no selling; maybe late but it wont happen until 2:30 or after if at all
dboy (06/27/2014 – 13:45:30):I dont think this push is over
dboy (06/27/2014 – 13:45:50): I think we can make new highs then pull back a little
iceChat (06/27/2014 – 14:08:42):(driley) The Russel Rebalance Hoax https://www.youtube.com/watch?v=xzvXWslnSAM
dboy (06/27/2014 – 14:09:07):big numbers.. all paired off
dboy (06/27/2014 – 14:09:25):if we had 50bil to sell in RL would be down 2% Note: my handle in iceChat is driley and in the MrTopStep room it’s dboy. The above comments are all mine.
“Paired off” means that for every sell at a given price, there is a buy order waiting. In other words, for everyone eager to sell at that price, someone else is just as eager to buy. Thus, price doesn’t move very far even when billions are sold. At 1pm Friday, a lot of buyers came in, snapping up everything the sellers were offering and then pushing the price back up.
As you can see
It takes a familiarity with patterns of order flow, experience in trading this type of price action, and a certain fine-tuning of reflexes that comes with decades of closeness to the markets. And it doesn’t get closer than the top step of the pit, which is where we speak to our members from. That’s what I mean by “feel.”
CNBC reported one rumor that may have been useful to some, but they either didn’t have access to the information we do or they chose not to share it with their viewers. Either one is a little troubling.
Learn to trust your intuition
As traders we rely on information, news, our charts, and the ideas of other smart traders; but after working on the trading floors for 37 years and dealing with so much algorithmic trading and dark pools I think it’s more important than ever for traders to rely on and develop their gut feeling for the markets and stay with the trend.
In most cases during a “rebalance” the buyers and sellers get paired off and yes there will be big buy or sell orders that move price around.
But yesterday it was clear that too many people were negative going into the close and it was my idea that any selling was paid off and there was going to be net buying on the broader market close.
I was right. The actual NYSE Closing Imbalance was: NET Buy $287 M – 06/27/2014-15:45 EST. It’s not because I’m some genius. I just used all the information available to me and put it in balance. And that includes my “feel” for the markets, refined and tested over 35 years.