S&P Overreacts To Weaker Than Expected CPI Number

Index Futures Net Changes and Settlements:

Foreign Markets, Fair Value and Volume:

• In Asia 10 out of 11 markets closed higher: Shanghai Comp +0.46%, Hang Seng +1.97%, Nikkei +1.47%
• In Europe 12 out of 12 markets are trading higher: CAC +1.25%, DAX +0.41%, FTSE +0.39%
• Fair Value: S&P -1.07, NASDAQ +5.60, Dow -13.40
• Total Volume: 2.1mil ESH & 1.1k SPH traded in the pit

Today’s Economic Calendar:

Jobless Claims 8:30 AM ET, Philadelphia Fed Business Outlook Survey 8:30 AM ET, PPI-FD 8:30 AM ET, Empire State Mfg Survey 8:30 AM ET, Industrial Production 9:15 AM ET, Bloomberg Consumer Comfort Index 9:45 AM ET, Housing Market Index 10:00 AM ET, EIA Natural Gas Report 10:30 AM ET, Treasury International Capital 4:00 PM ET, Fed Balance Sheet 4:30 PM ET, and Money Supply 4:30 PM ET.

S&P 500 Futures: Mid-Month Rebalance Causes Mammoth Short Squeeze, Pushes The #ES Back Above 2700.00

U.S. consumer prices jumped more than expected in January, with a measure of underlying inflation posting its biggest gain in a year, furthering expectations that the Federal Reserve will have to quicken the pace of interest rate increases this year. The S&P futures (ESH18:CME), which made a high at 2667.27 on Globex, and was trading at the 2672-73 area when the number was released, went swooping down to 2626.75 two and a half minutes after the the CPI number was released. +

The ES short covered, traded 2647.50 on the 8:30 open, rallied a little and pulled back a little, then went flying up to 2657.00 around 9:45. The ES pulled back to 2647.00, and over the next two hours made a new highs at 2677.00, 2679.50, and eventually up to 2696.00, up 31.5 handles.

After the high, the futures pulled back to the 2686.00 area, and then traded all the way up to 2701.50, up 33.50, or +1.35%. The MiM started to show big for sale, $1.2 billion, and the ES pulled back down to 2694.25 before popping back up to a new high by 1 tick at 2701.75 when the final imbalance came out sell $680 million. On the 3:00 cash close the ES traded at 2697.50, and went on to settle at 2696.75 on the 3:15 futures close, up 33 handles, or +1.24%.

The (MiM) MrTopStep Imbalance Meter

The last few days I have been getting emails about these MiM posts in the Opening Print. I realized that they are somewhat out of context if you don’t know what I am looking at and why.

The MiM as a manual gather of early look imbalances from the floor of the NYSE. These imbalances are created by market-on-close (MOC) orders entered. When buys orders outpace sell orders there is a buy imbalance on that symbol. A sell imbalance is just the opposite.

The MiM aggregates all those imbalances into two numbers; the total of the all buy imbalances and the total of all the sell imbalances. The total imbalance is the sum of the buy and sell imbalances. This is the top-line number and is the red area in the chart below.

These MOC orders are fluid between 2:00pm ET and 3:45pm ET. Past 3:45pm they are committed and uncancelled, this is when the “published” imbalance number that is made public.

We have a lot of traders that use the MiM in many ways. My game is to use the MiM to predict that 3:45pm number, we refer internally as the reveal, the time when all orders need to be in or canceled.

I don’t find price movement between 2pm to 3:45pm affected by the MiM, there are some nuances there, like when 90% of the stocks are on one side or the other, those get broadcast pretty early.

I am mostly interested in that golden rectangle area on the price chart. If I am getting good indication that the early MOCs are all one-sided and their size is big, I will do my best to find good entries prior to the 3:45pm reveal.

Yesterday, I took a short at 3pm ET @ 97 ESH. The MiM was showing 1B to sell and the bias was strong to the sell side. When the reveal came, the sell side vanished and the actual MiM MOC was -664M. The prediction was bad, I had expected a larger sell side than what the actual was. However, the sell side was still large enough to give me an exit, as the market did a small down move.

If you have questions about the MiM, email me marlin@mrtopstep.com.

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

_{Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.}