Thin-to-Win Meets Year End Rebalance

Commentary, E-mini S&P 500, News, Our View, The Opening Print

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After rallying above 2070 late on Tuesday the thin-to-win trade looked promising for a continued rise into years end but the markets had different plans for Wednesday. Yesterday. the global markets remained a bit mixed. The S&P was trading around 5 handles lower on the cash open when the futures sold into the pending home sales release, which was a noticeable miss being negative, while the expectations were for a positive number.

It appears that the higher the S&P is above 2050, the less conviction there is in buyers, and the sellers maintained control throughout the day. The ESH16 held Tuesday’s cash open early but failed there late in the day as the futures began to give over to the offer side going into the close.

The S&P 500 retraced most of Tuesday’s gains on very low (sub 700k) volume to close at 2055, just marginally higher on the year, as tomorrow’s New Year’s Eve trade will have plenty to watch for. The futures are trying to maintain a positive year, with 2052.50 as the line and the sand, and the cash index having 2058.90 as it’s 2014 close.

At the end of the day it appears that possible tax selling and portfolio rebalancing had it’s way with the markets. Today we will continue to see a low volume but interesting trade as 13 of the last 20 years the benchmark index has closed lower, at times with quiet movements, and other times more noticable movements, with the final hour typically of most interest.

MrTopStep is sticking with his ‘thin to win’ trading rule right into the end of the year. That doesn’t mean there will not be some selling late Today.

Date                 ESH16:CME Close Volume Net Change
Dec 17 2024.75 2,108,759 – 39.00
Dec 18 1992.00 2,105,533 – 32.75
Dec 21 2015.00 1,269,272 + 22.00
Dec 22 2036.00 1,142,331 + 21.00
Dec 23 2053.00 1,003,210 + 17.00
Dec 24 2051.25 323,112 – 1.75
Dec 28 2050.00 694,593 – 1.25
Dec 29     2072.75 829,702 +22.75
Dec 30     2055.00 720,348 -17.75

As you can see above, this is not the first time we have pointed this out. After a big pickup in volume and volatility, the S&P will eventually ‘level off’, and as volume drops, or subsides, the futures will rally. It does not matter what the occasion is once the short covering starts, and the buy programs start to kick in, it’s ‘Lights out London’ for the bears!

In Asia, 6 out of 11 markets closed higher (Shanghai Comp -0.94%), and in Europe 6 out of 12 markets are trading higher (DAX -1.08%). Today’s economic calendar includes the Weekly Bill Settlement, 2-Yr Note Settlement, 5-Yr Note Settlement, 5-Yr TIPS Settlement, 7-Yr Note Settlement, Jobless Claims, Chicago PMI, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 52-Week Bill Announcement, Baker-Hughes Rig Count, SIFMA Rec., Early Close 2:00 ET, Fed Balance Sheet and Money Supply.

Our View: We have been saying all week it was going to be a quiet trade and the best thing to do is to not trade. It’s the final day of the year and I’ll continue to say that there is no need to end the year and go into a new year on a sour note, so our call is to use tight stops and take a profit when they exist. The historical pattern for the final trading day of is quite mixed. There have been very quiet days in the S&P futures on the final day of the year, and there have also been some very volatile days. Our view is to not fight the trend, trade on the whatever side the market is on at the 8:30 print, and be careful for the final hour of the day when the volatility often picks up.

Have a great weekend and please be safe! From MrTopStep.

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

 

    • In Asia 6 out of 11 markets closed higher : Shanghai Comp -0.94%, Hang Seng +0.15%, Nikkei +0.27%
    • In Europe 6 of 12 markets are trading higher : CAC -0.65%, DAX -1.08%, FTSE -0.41% at 5:00am CT
    • Fair Value: S&P -7.48, NASDAQ -6.88, Dow -90.55
    • Total Volume: 720k ESH and 3.9k SPH
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Danny Riley (3544 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


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One thought on “Thin-to-Win Meets Year End Rebalance

  • HI DAN, IT HAS BEEN A VERY LONG TIME, 20 YEARS AND COUNTING, DONT KNOW IF U REMEMBER ME BUT MY BADGE WAS ‘FMC’ AND U WERE THE FIRST ONE TO INTRODUCE ME TO THE FLOOR OF THE CME IN THE SP500 PIT, THANKS AGAIN HOPE ALL IS WELL, ANY INSIGHT INTO THE MONTH-END REBALANCE FOR SP FUTURES AND CRUDE OIL FUTURES ?

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