The S&P 500 futures (ESM17:CME) and the Dow Jones futures (YMM17:CBT) closed up over +1.10% Monday off of the French election results. The Nasdaq 100 futures (NQM17:CME) traded at a new high, or up +1.2%, to 5512.75. The three futures saw their largest gains since March 1st.

Everything was moving… The French CAC was up over 4.4%, and closed up +4.1%, the largest one day rally in five years. The German DAX closed up 3%, hitting a new high, and the British FTSE closed up 1.37%. The VIX that traded up to 1596 on April 13 (its highest level in five months) fell 26% to 10.84, its largest one day drop since 2011. The Euro that was up +2.3% ended the day up +1.3% to $1.0868, its largest gain since last June, and gold lost some of its shine, losing -0.90% to $1,275.80. Crude oil slid on oversupply concerns, falling to its lowest level in four weeks, off -8.5% from its one month high hit on April 11.

Yesterday’s trade was exactly how we called it in the ‘Our View’ section of the Opening Print; sell the early rallies and buy weakness. The ESM17 traded up to 2376.75 on Globex and started selling off before the 8:30 futures open. The futures traded 2371.40 on the open and then started moving back down. After trading up and down through the VWAP, the ES made an early low at 2367.25, rallied back up to the 2372.00 area, and then got hit by a few small sell programs that pushed the ES down to its daily low at 2365.75. After the low, the ESM17 rallied back to 2374.00, and settled at 2370.25 on the 3:15 futures close.

Despite the big move up, the day’s overall trade saw 1.5 million ES contracts traded, with 360,000 of that coming from the Globex pre-8:30 futures open. In terms of the S&P’s overall tone, it felt like all the hedgers were getting squeezed out.

TraderDave And Event Trading

Trader Dave told me over a year ago that it was too hard to day trade, and that what he does is wait for the ‘big moves’. At the time I thought he was a tad crazy, but after looking at the ES over the last 10 months, I am starting to understand what he is saying. While I am not telling day traders to give up their jobs, I do believe that the charts below are an eye opener for traders that want to trade the ‘big moves’.

When you look at the overall price action over the last seven or eight years, it’s all about what I call the ‘drops and the pops’. That could mean a 20 handle, or even a 100 handle drop, but the net result has always been that the S&P futures go down for several days, and then take back half the losses on the first up day as they start to retrace any selling.

This brings me to the point, what’s a better way to make money? Day trade, try and get in and get out, make a few bucks (if you can) and call it a day, or wait for those times that there is a ‘big event’ and jump in / try and profit from the event or response? Or do a combination of both…day trade the ES, and when the big events come along, use wider parameters and hold positions longer?

According to TraderDave there are only a few times a year when big news will move the S&P sharply. He said ‘if you can catch three or four of these moves you can make your whole year. It’s better than the day trader grind, and it keeps you from burning out too as fast.’ At first I disagreed, but after seeing TraderDave sell into the highs the night of the Brexit vote, and how patient he was leading up to the event, he had a plan and he executed it. I am not sure all day traders will see it that way, but it’s hard to disagree with the idea, it’s just a matter of executing it.

Another approach is what my friends Hayes said to me one day before the markets sold off, you can buy the S&P as a day trade, but own some puts also. This way would be to day trade the ES, and set up an options strategy.

S&P futures dropped from the 2119.50 Brexit high to limit down at 1999.00 then to 1981.50 two sessions later before rallying 186 handles in 12 sessions.

Event Driven Sell Offs: Election night November 8, 2016 the ES dropped from 2135.75 to limit down to 2028.50 and rebounded to close higher at 2160.50 in the same session. Since then has rallied 372.50 handles or 18.3%.

Health Care Event Driven Sell Off.Rallied to 2378.75 on the open then dropped down to 2338.00 on regular session then to 2332.25 in globex

While You Were Sleeping

Overnight, equity markets in Asia and Europe rallied once again, although more modestly than on Monday, as 22 of the 23 global markets we track closed, or are currently,trading higher this morning. In the U.S., the S&P 500 futures opened the overnight session at 2370.00 and printed a 2368.25 low before pushing higher for much of the globex session. The ES traded up to 2375.00 just before the Euro open, and has since traded sideways, last printing 2374.00, up 4.00 handles, on volume of 105k as of 6:34 am cst.

In Asia, 10 out of 11 markets closed higher (Nikkei +1.08%), and in Europe 12 out of 12 markets are trading higher this morning (CAC +0.39%). Today’s economic calendar includes Redbook, FHFA House Price Index, S&P Corelogic Case-Shiller HPI, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing Index, State Street Investor Confidence Index, a 4-Week Bill Auction, a 52-Week Bill Auction, and a 2-Yr Note Auction.

VIX Down 26%

Our View: You gotta love it. Eight trading days ago the VIX was within spitting distance of 16, and during yesterday’s ‘spike’, it had its largest daily drop since 2011. The shorts got spanked again. That’s how this works now… Line everyone up short and jam the ES higher. There is a high level of economic report and earnings reports this morning. Our view, we still think the ES is going up, you can sell the early to midday rallies and buy weakness, or just buy weakness. I do not think all the shorts have covered yet.

Market Vitals for Tuesday 04-25-2017

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As always, please use protective buy and sell stops when trading futures and options.

  • In Asia 10 out of 11 markets closed higher: Shanghai Comp +0.19%, Hang Seng +1.31%, Nikkei +1.08%
  • In Europe 12 out of 12 markets are trading higher: CAC +0.39%, DAX +0.04%, FTSE +0.30%
  • Fair Value: S&P -3.36, NASDAQ -1.73, Dow -59.87
  • Total Volume: 1.5 mil ESM and 8.7 k SPM traded

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