Watching the Russell, Crude and more Fed Speak

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Our View

The Russell 2000 (RUT) made a high in December at 2097 and traded down to 1904 yesterday. It’s down 9.0% from its high while the ES is down 1.43% from its high. The funds have been rotating out of the small caps into the ES since mid-December. I know the ES has sold off this week but it settled at 4790 last Wednesday, so though it has moved down, it’s trading at or near the same prices.

So what does that mean? The first part is that the RTY is oversold and the second part, despite the negative Fed talk and the bonds falling, the ES is still holding above 4750.

Handelstats Levels

$ES Currently trading 4792. Upside: Hourly close above 4789.50 targets 4795.12 then 1sd 4799.05. Hourly close above there targets 4803, hourly close above

there targets 4809.50, hourly close above there targets 4826 then 2sd 4829.35.

Downside: Hourly close below 4789.25 targets 4777.50, Hourly close below there

targets settlement 4768.75. Hourly close below there targets 4765.75 then 4764.25, hourly close below there targets 4757.88 then -1sd weekly 4755.36, hourly close below there targets 4749.50, hourly close below there targets -1sd 4738.45. Below there, 4735.25 then 4732.50, hourly close below there targets 4724.25 then 4716.50 then -2sd 4708.15.

Our Lean

Despite having an 11-point lead and saying I thought the ES was going up, I did take a small loss on my long overnight. On yesterday’s lower open I bought the NQ and got out right away and got short.

IMPRO : Dboy : (9:30:25 AM) : paid 16,830.5 on 1 nq
IMPRO : Jim Mayo : (9:30:36 AM) : nq open 16,825.25
IMPRO : Dboy : (9:30:52 AM) : this shits is no good
IMPRO : Dboy : (9:31:07 AM) : flat 823.00
IMPRO : Dboy : (9:31:42 AM) : sold 1 nq at 16,811.5

Sometimes on a big gap down open, you will get a quick 30- to 40-point rip even when you are counter trending, but after the NQ went bid and immediately went offered. I got right out and reversed. If you hesitated, the futures were down 40 points right away. I got in and out of the NQ, made over 100 points, and then made some smaller scalps both making and losing. And that’s when I put this out:

IMPRO : Dboy : (1:52:00 PM) : looks too easy to just sit short here

That post was right off the 4746.25 low of the day

Our lean, I know when I get bearish the ES will rally. @RealTrader Dave insists we see ES 4700 but I don’t see it. I am looking for the Thursday low before the Friday expiration which could have come yesterday. I can’t rule out selling a rip but I’m sticking with buying the pullbacks, provided the bonds and notes are not falling. Lots of stops building up on the upside. Over the last two days the ES has made new lows while the NQ hasn’t.

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MiM and Daily Recap

After finishing firm, the ES sold off down to 4764.75 on Globex and opened Tuesday’s regular session 4766.00. After the open, the ES traded down to 4758.00 at 9:50, traded up to 4775.75 at 11:08, back and filled just above the vwap at the 4775.75 level, printed the high two more times, and then sold off down to the 4746.25 level at 1:50. After this low, the ES rallied back up to 4765.00 at 2:48, sold off down to 4754.50 as the early imbalance showed $38 million to buy, and then rallied up to the 4767.75 level at 3:49. The ES traded 4766.50 as the 3:50 cash imbalance showed $1.2 billion to buy, traded up to 4774.25, dropped to 4771.00 on the 4:00 cash close, and settled at 4769.25 on the 5:00 futures close, down 29.25 points or -0.61% on the day.

In the end, none of the rallies held until late in the day when they caught everyone short. In terms of the ES’s overall tone, it acted weak but did rally late when the NQ buy programs hit. In terms of the ES’s overall trade, volume was steady, 333k traded on Globex and 1.404 on the day session for a total of 1.737 million contracts traded.

Guest Post

SpotGamma is one the the shining stars of the options markets. If you have never heard of them or already know of them and have never signed up for their options flow products or the SG Academy, I fully suggest you check them out and add them to your trader’s toolbox.

Here’s a snippet from them:

For the remainder of this week, one has to give edge to the S&P remaining inside of the neural zone of 4,700-4,800. If <4,700 gives way, we think larger downside must be respected (ex: buy dips with a stop just <4,700). This is the range in which the large OPEX gamma has built up, as shown below in SPY. In particular we flag the large gamma at SPY 470 (yesterday’s low), and 475 (major resistance for today). While 480 is a smaller strike for SPY, 4,800 is a very large gamma strike for the SPX, which should contain upside into Friday. for the SPX, which should contain upside into Friday.

In an upside scenario we think that the SPX will likely wrestle with 4,800 in through 2/1, but we will let the roll-up of Call Wall’s dictate that upside resistance. Currently the SPX Call wall shifted to 4,900, with SPY’s wall remaining at 480. To the downside, a break of 4,700 likely invokes a test of 4,600.

Out of FOMC we likely see a broader directional move set up. When we look out in time, there isn’t a clear downside strike setting up, but we do see 5,000 as a major upside level due to an increase of positions at that strike several weeks ago.