These Are Not Our Fathers’ Markets or Charts

A day to buy the dips?

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Our View

You know my saying, “these are not our fathers’ markets or charts?” Well they are not, nor will they ever be.

It’s not something to be mad about; we are the ones that choose to get up everyday, sit in front of our screens and try and trade in a market that at any second a wayward headline can drop the S&P 20 points in 30 seconds and then rally 25 points straight up.

I can remember being at my S&P desk when the SPU would drop quickly and I would grab the UBS S&P index arbitrage program direct line and at the same time pick up Moore Capital and hear the trader say, “Danny sell 800.”

In order to do a sell program like that, the S&P futures would have to fall 100 under fair value. If fair value was 3.00 I would be bidding 4.00 under the S&P cash, but what made it so powerful was having the sell order in my hand. The trader would pick up the line and he knew where the S&P cash was and he could see the futures were offered so he would say, “Danny bid 850.50 for 100 and 850.00 for another 100.”

I would put both orders in and then look at the clerk and yell “sell 300” and the clerk in the pit would report the fill and simultaneously I would tell the trader his orders were filled and he would yell into the phone and say, “Good work Danny, where is it?” I would scream back into the phone, “849.80 bid.” He would yell back, “bid 849.60 bid for 100, 849.40 for 100 and 849.10 for 100.”

So again I would enter the order into the clerk in the pit and then place an order to sell 500 down to 849.00 and just watch the SPU get totally killed with me being the conduit!

What also made it special was UBS’s fair value was cheaper than many of the other back trading desks, so not only did I get the trade done quicker but he was smoking the other program desks because he knew he was going to get filled and hit the dot long before I would ever report the fills.

After the trades, I would pick up the trader and say “how did you do?” and said, “250k Dboy, thanks.”

The programs I did back then led to the introduction of the algos and the high frequency trading program. To conclude, the PitBull was going to take out a $1 million ad in the Wall Street Journal condemning the use of program trading, arguing that it was unfair and should be banned and that it will someday ruin the game.

Well…I guess my question to you is, did it?

Our Lean

Yesterday we had an in-line CPI result and now this morning we get the PPI results. Friday is the weekly options expiration.

Our Lean: This is a buy-the-dips market and I think the ES is going to take out the buy stops above 4186. I can’t rule out selling an early rally, but ideally my lean is for buying the dips.

This may be too high, but it looks like initial support at 4138-4140, 4122, and then 4090 to 4100. On the upside, I am looking at 4180, 4200 and 4220.

I also think there could be a sharp gamma squeeze during Fry-day’s expo.

MiM and Daily Recap

The ES traded up to 4173.25 on Globex after the CPI number and opened Wednesday’s regular session at 4162.75. After the open, the ES rallied up to 4169.50 at 9:33, traded down to 4138.50 at 9:50, rallied up to 4161.50 and sold back down to 4141 at 10:19. From there, it back-and-filled for the next 25 minutes before selling off down to a new low at 4125.50 and then rallied up to 4148 at 11:44.

After the rally, the ES sold off all the way down to 4112.25 at 2:21 and then rallied all the way up to 4162.50 at 3:34. The ES traded 4155.50 as the 3:50 cash imbalance showed $2.2 billion to sell, traded down to 4150.50 and traded 4152.50 on the 4:00 cash close. After 4:00, the ES chopped in a narrow range and settled at 4152.75 on the 5:00 futures close, up 18 points or 0.44% on the day.

In the end it was a pop, a drop and then a rip CPI day. In terms of the ES’s overall tone, it was firm but the NQ was the leader. In terms of the ES’s overall trade, volume jumped to 1.8 million contracts traded.

Technical Edge

The ES did about 1.83 million contracts in trading volume yesterday, which is almost Monday and Tuesday’s totals — combined!

Yesterday I mapped out the outer ranges for the market, but we couldn’t even push through the first layer. For the ES, that was ~4175. For the SPY, it was $414 to $415.

S&P 500 — ES

The retracements make the chart look busier than it is. But notice how the 78.6% retrace capped yesterday’s rally, while the 50% retrace going the other way acted as support.

Danny hit the nail on the head yesterday with the Our Lean levels, calling out the 50% retrace specifically.

SPY

SPX

QQQ

Tech was a leader yesterday. Notice the price action. It’s subtle but constructive. The QQQ got above $321, then stayed above it. Then it rotated over $323.50 and closed well above it.

NQ

Highest daily close of the year as the CPI was able to break the NQ out of its range. Now we need to stay above 13,300 to keep our trade intact. It hit several of our upside levels, which was impressive yesterday.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B

Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders →

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!