What Kind of Meat Do Bulls Eat?

Let’s take a walk down memory lane.

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Our View

What kind of meat do the Bulls eat? 

Bear meat.

That’s been an old line of mine, but guess what? It’s been that way for some time. 

The patterns are the patterns: Markets pull back, drop or back-and-fill, then go on up to new to new highs. While the S&P and Nasdaq are defying logic, it doesn’t matter because of the endless liquidity supplied by the Fed. 

What I find so striking is the S&P is acting exactly like it did when the Fed delivered its first round of quantitative easing programs. I was a huge advocate of one of the most overused saying in the last 30 years, “don’t fight the Fed.” 

For the new readers and some of you that have never read this before, I’ll say it again: I am not an economist and I am not a Wall Street analyst. But I am not here to fight city hall. I’m a street guy that ended up on the trading floors of Chicago and built the largest S&P 500 futures desk on the floor. 

I was the guy who unwound AIGs positions in the S&P, Nasdaq, and Rusell 2000 futures during the credit crisis and watched my largest account, Bank of America, get moved to Merrill. There are not many people that got stuffed for $9.5 million during the flash crash — me! — and there are not too many people that survived what I have. I bring my game-face to the screens every day. 

The trading floor is supposed to be a place where the well-educated Princeton grad who interned at Goldman over the summers and loved trading would thrive, or the very smart guy from Penn who had great grades and played football would be a perfect place to make a name for himself in the bond pit. 

Neither guy made it for more than three years — and the guy that did go three years was because his parents gave him millions to stay in the game until then they yanked him off the floor. 

At the end of the day, there is a lot of common sense that goes with trading. I am not smart enough to have a fancy set up with indicators all over my chart. I read volume and most of all I am not here to fight city hall. If the S&P is going up, I want to go for the ride. And never forget the Fed is your friend. 

Our Lean

Did you see the CAC and the DAX? Both fell 2% amid rising fears over the political direction of Europe and the possible election of Marine Le Pen. Investors sought out safe-haven assets as concerns over political turmoil in France deepened, with European stocks heading for their worst week in months and US equity futures weakening.

The Stoxx 600 dropped 0.7% to extend losses since Monday to 2.1%, while France’s CAC 40 index erased its gains for the year. The S&P 500 and Nasdaq 100 are set to open lower after notching up record highs every day this week. 

A gauge of the dollar rose against major global currencies, while Treasury yields declined five basis points.

“It’s a risk-off tone with concerns over France driving the markets,” said Mohit Kumar, chief economist for Europe at Jefferies International. “Particularly going into the weekend, investors would be taking some positions off the table.

Our Lean

I said sell the higher open and look for a pullback to reverse and go long for the PitBull’s Thursday/Friday low before the June Triple Witch expiration. 

Nice bounce, nice close, now what? Well it’s the week-two FRY-day options expiration. If we gap higher, I want to sell the early rallies and buy the pullbacks and if we gap lower I want to buy the early weakness. I don’t think we will see a big range. 

MrTopStep Levels:

MiM and Daily Recap 

The ES traded down to 5426.00, rallied up to 5252.75 on Globex and opened Thursday’s regular session at 5444.25. After the open, the ES traded 5445.50, sold off down to 5446.25, rallied up to a lower high at 5442.50m and then made a series of lower lows all the way down to 5417.00 going into 10:30. From there, it rallied up to 5426.50 and then sold off down to a new daily low at 5415.00, rallied up to 5224.00, and then traded back down to 5414.75 at 11:00, rallied up to 5429.25 at 11:46, and then sold off down to 5408.50 at 12:30 — a 44.25 point drop. 

After the low, the ES rallied back up to 5432.25 at 1:30 — from the low to the high 135k ES traded — sold off down to 5424.25 at 1:38, and traded back up to 5443.50 at 3:06, a 33.25 point rally. After the high, the ES pulled back to 5434.25 at 3:00 and traded 5440.00 as the 3:50 imbalance showed almost $1 billion to buy, rallied up to 5445.75 and traded 5437.00 on the 4:00 cash close. After 4:00, the ES popped up to 5443.00 and then sold off down to the 5435.50 level and settled at 5438.50, up 11 points.

In terms of the ES’s overall tone, it was tired and pulled back. In terms of the ES’s overall trade, volumes were higher: 1.6394 million ESM and 483,462 ESU traded. While some people are starting to roll to the September contracts, the actual rollover starts on Monday.

Technical Edge  

Guest Post — SpotGamma

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: 

As we lose these call heavy positions with OPEX, we think it will likely lead to some equity consolidation – but probably not until next Thursday/Friday & into the week after. That timing may be a bit “too cute”, but those looking to buy puts stare down the short term decay of the weekend and the Wednesday market holiday (Juneteenth). Therefore we may not see hedging pressure on equities, yet.

We’ve been on record as stating that we felt NVDA’s equity outperformance was due to break starting this week, after the 10:1 split. The stock is +5% this week, testing the 130 level. As you can see below, the amount of call positions (orange bars) immediately >130 start to sharply dwindle. This signals a possible slowing in momentum.

What could additionally hit this stock is the size of its expiration for next week. On a delta basis it has the 3rd largest expiration of any US listed instrument – only behind the behemoths of SPX & SPY. So NVDA is bigger in the options space than: QQQ, NDX, MSFT, AAPL, etc. That strikes as very…bloated. We think the removal of these very large calls could lead to some hedging adjustments, and some consolidation in NVDA, and stocks more broadly.

Economic Calendar

For a more complete Economic Calendar see: https://mrtopstep.com/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!