S&P 500 Futures: First Day of December & Turn-Around Tuesday

Today’s ESZ Levels:

Todays USZ Levels:

After the November month end selling occurred on Monday, we began to anticipate some of that money coming back to work to begin December, and it didn’t take long. The futures began to rally after Monday’s close, and after pausing during much of the cash session Tuesday, the ESZ ran higher into the close. At the contract close of the day the ESZ15:CME closed up 20.25 handles, nearly +1.0%, while the Nasdaq futures (NQZ15:CME) closed up 48 handles, up just over 1.0%, and the Dow futures (YMZ15:CBT) closed up 148 points, or +0.84%

As an old floor trader and desk operator it was all about order flow and reaction time. If you were in the S&P pit you could see the ‘order flow’ and if you were fast you could jump right in front of it. Locals in the S&P pit made millions stepping in on the buy side while the broker across the pit was buying thousands of contracts and bidding up the futures. In most cases the pit trader didn’t need to front run because they were there, in the pit, while all the customer buying or selling was going on.

DAZED and CONFUSED

I had already mapped out my plan before leaving the trading floor, I wanted to expand MrTopStep.com to help other traders adapt to trading off the floor and on the screens. I read an article recently where the author claimed that, contrary to what most people think, former floor traders can reinvent themselves and make the transition successfully, but in my case, and so many others, I knew that it would not be easy. Unlike the cushy trading floor, the real world is a lot harder, and making the money the way I did when I was still on the floor would be hard to do. So I had two avenues to make money, run MrTopStep and turn it into a more profitable company. The second avenue, being the scary part, I had learn to trade off floor. See, I was a volume / flow reader on the floor and I needed something that could help guide me throughout the day. I knew I could not draw lines on the charts like the PitBull spoke about when we visited his alma mater, Amherst, sharing his unique trading experiences and methods. For me, I needed a quicker solution, one that was colorful, something that stuck out and helped me maintain a feel for flow and direction. A well known trader I worked for in the bond pit used to call me up and ask me what I thought, he knew I didn’t follow charts but that I followed highs, lows, and volume. After a few months of working for him he asked me to come to his office where he sat me down and told me how he thought, with a little training on how to read charts, that I could improve my accuracy. So I started doing a ‘point and figure’ chart which lasted all of about one day. At that moment I knew that I wasn’t going to be a chartist. The old traders were stock market tape readers, and I had become a futures tape reader. I don’t look at one thing, I look at several, but most of it is based off of order flow. I can’t fully explain it, but it’s like looking at the quote board on the CME floor. After staring at them for so long, and counting out the bid / offer volume, I can read it. I know it’s not a full line up of indicators like many traders employ, but most of those traders were not on the floor for 38 years handling customer business.

I am not going to say ‘I knew’ the ESZ was going to run the stops today, but I laid out all the reason for thinking the S&P would move higher, and it did. I knew the balance of buy stops were much larger on the upside than on the downside, and with ECB about to extend its QE program and continue to lower rates, combined with it being the first trading day of the month after a big sell on the last trading day of November, I figured the mutual funds would put money back to work on the first trading day of December that it took out on November’s close, but the ES had to wait all day to make the move. Am I smart? I don’t think so. Like it or not, the markets will always show you both sides, and as we go into the end of the year we think it will be more buys to come.

The charts I use are from MarketDelta. As the owner of the firm says ‘the charts were set up with local traders in mind’. They are easy to read and they help me pick ‘turning points’. Is it perfect? By no means is it perfect. Is some of it being around the S&P for so long? Sure, but at the end of the day, I call it getting into the groove of the price action. Like I have always said, I do not pretend to be smarter than you. I am just an old futures tape reader that has seen this act before. I’m going to stick with my call; 2150 by mid- December and 2200.00 at year end. If I’m right.. no one will remember. If I am wrong I will hear about it for months. You can take it from there.

In Asia 8 out of 11 markets closed lower (Shanghai Comp +2.33%), and in Europe 10 out of 12 markets are trading lower (DAX -0.29%). Today’s economic calendar includes the MBA Mortgage Applications, Dennis Lockhart Speaks, ADP Employment Report, Productivity and Costs, Gallup U.S. Job Creation Index, Janet Yellen Speaks, EIA Petroleum Status Report, John Williams Speaks, Janet Yellen Speaks, and Beige Book.

ESZ15 2100

Our View: There are a lot of numbers that the markets have to get past this morning to keep running the buy stops. There are more upside buy stops to run, but the ESZ has to get above 2105, and hold, to keep going up. If that happens it could be a quick shot to 2120-2124. The main thing here is everyone is now starting to think that we charge to 2150. The S&P has taught us that it ‘never does what most people want it to do when they want it’. Our view is sell the rallies and buy weakness with a bias to the upside.

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

• In Asia 8 out of 11 markets closed lower : Shanghai Comp. +2.33%, Hang Seng +0.44%, Nikkei -0.37%
• In Europe 10 out of 12 markets are trading lower : CAC -0.10%, DAX -0.16%, FTSE +0.52% at 6:00am CT
• Fair Value: S&P -1.43 , NASDAQ -0.71 , Dow -12.33
• Total Volume: 1.48mil ESZ and 7.5k SPZ

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