The S&P futures rallied from the 2103.00 level up to 2106.00 just before Friday mornings 8:30 CT futures open. After the open, the ESU15 traded up to 2099.25, and then reversed, trading all the way down to the 2098.25 level. The reason for the ESU15 reversal was a combination of overbought conditions and month end selling. The next move was back up to the 2107 level as the S&P futures attempted to trade both sides of the Globex trading range. Just after 10:00 CT, I put out in the room that the ESU15’s felt ‘tired’, but the big problem is the lack of volume, and the PitBull is pointing out the QCHA is +44.
Not long after I wrote this, the S&P’s made a new daily high at 2099.25, right where the Globex high came in, and then started to sell off. It was the last trading day of July, and a Friday, which have not been good days for the stock market lately. Of the last 11 Fridays, the Dow has closed down 9 times, and last Friday fit one of MrTopSteps trading rules called the ‘Walk away trade’. Its an old trading rule that worked like a charm in the 80’s, 90’s and early 2000’s, but like many of the old indicators / trading rules it fell off its tracks. I have said this many times; I do not pretend to be an authority, and I admit that trading is not easy, but I also believe that using the proper indicators and applying some working trading rules will enhance your ability to make the proper decisions when its comes to buying and selling.
When I looked at the overall price action of the S&P futures on Friday, and the PitBull mentioned the ‘Walk Away’ trade, it all seemed to make sense to me. The ESU15 was coming off a 3 day rally, was trading above 2100.00, and was starting to run the buy stops above 2106.00. The first part of this was the S&P’s had gone a long way. The second part was, it had run most of the buy stops above 2100.00, and the third part was all the selling that has been going on the last trading day of the month(s). The mutual funds had already marked up stocks during the T+3 process, and I just did not think there was that much buying left, so I went into the room and explained how the ‘Walk Away’ trade works, and then I took it to Twitter and StockTwits just as the ESU15 made its early high of the day at the 2107.00 to 2108.00 level. Below are the exact times and posts of my original tweets. I suggest you do a time and sales…
@MrTopStep 9:44am · 31 Jul 2015
Traders ; MrTopStepTrading Rules 101Are you ready to learn something?
@MrTopStep 9:48am · 31 Jul 2015 ·
Have you ever heard of the ‘Walk Away’ trade?@MrTopStep 9:51am · 31 Jul 2015
Here is how the Walk Away trade works…@MrTopStep 9:54am · 31 Jul 2015
On the floor the PitBull taught me a trade called the “walk Away” trade. From 11:00 – 1:00 he would put scaled offers in the S&P futures@MrTopStep 9:55am · 31 Jul 2015
MSLO the largest S&P pit local caught on to this trade idea also and would show up in the pit selling at that time also…@MrTopStep 9:57am · 31 Jul 2015
The idea behind the trade is that by 12:00 or 1:00 CT the mutual funds have used up most of their buy associated with ‘month end’ markup…@MrTopStep 9:58am · 31 Jul 2015
Thus leaving the S&P susceptible to a decline. This trade worked for many years but like many trading rules it got used up.@MrTopStep 9:59am · 31 Jul 2015
That said.. I think we see some type of “Walk Away’ trade today. We have already seen part of it
In the end, the futures did ‘exactly’ what I called for, they sold off. A guy on @StockTwits hit me up saying something about the S&P “does that everyday” meaning selling off, and I hit him back and said this was not like all the others sell offs lately because the mutual funds knew they had cash to sell before the stock market opened. It was planned month end selling and it was 100% part of MrTopSteps month end Walk Away Trade. Not some run the stops algo blip, there was $2.4bil for sale on the close. That doesn’t happen everyday!!!
In Asia, 9 out of 11 markets closed lower (Shanghai Comp. -1.1%), and in Europe 8 out of 12 markets are trading modestly higher this morning. This week there are a total of 24 economic releases, 10 T-bill or T-bond Auctions or Announcement, one Federal Reserve Governor speaking, the International Trade number and Friday’s jobs report. Today’s economic schedule starts with Federal Reserve Gov. Jerome Powell speech on structural issues with U.S. bond markets, in Washington, Motor Vehicle Sales, Personal Income and Outlays, Gallup US Consumer Spending Measure, ISM Mfg Index, Construction Spending, 3 and 6 month T-bill Auctions and earnings from TSN, AIG, CLX, FTR, PPL, ALL, NEE, CDW, L, NI, KBR, GWR, UGI, DO, DK, THC, CNA, CAR, RBC, ON, KAR, XL, and ALJ.
HISTORICALLY VOLATILE MONTHS AHEAD
Our View: So out with July and in with August. Historically, August, September, and October are known for their pickup in volatility and wild swings. Its so early into the cycle we think it’s going to take a few weeks to kick into gear. Last Friday the ES did exactly what it was supposed to; sell off. When the MiM started showing $450mil to sell at 1:30 CT, I knew the mutual funds had stock for sale, but the front run had already shown up in the S&P’s. I went out in the room and on Twitter that I thought the MOC would be over $1.5bil to sell, and it came out MOC Sell $2.4bil. The ESU15 sold off a few more handles down to 2095.25 late in the day, and then rallied up to 2099.00 area in the final minutes of the day.
Our view is that today is the first trading day of August, and while the ES was weak on Friday, there may be some buying around at some point. My guess is that the ES sells off in the first part of the day and then goes up, but I think it might be quiet.
As always, please use protective buy and sell stops when trading futures and options.
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In Asia 9 out of 11 markets closed lowe : Shanghai Comp. -1.11%, Hang Seng -0.91%, Nikkei -0.18%
- In Europe 8 out of 12 markets quoted are trading higher : DAX +1.01%, FTSE -0.01%, CAC +0.73%, MICEX -0.60%, at 6:00 am CT
- Fair Value: S&P -6.72% , NASDAQ -9.19% , Dow -83.48
- Total Volume: 1.6mil ESU and 4.4k SPU traded
- Economic calendar: Jerome Powell from the Fed speaks, Motor Vehicle Sales, Personal Income and Outlays, Gallup US Consumer Spending Measure, ISM Mfg Index, Construction Spending .
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