Will We See Another Upside “Fry-Day” Squeeze?

Be mindful: Futures contracts are rolling.

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Our View

When I used to say “don’t fight the Fed” it was during the credit crisis and the government was doing one QE program after another. It was one of the greatest times for my floor trading. Just about everyday the SPU would pull back and then rally its head off. Similarly, the ES pulls back and rallies just about everyday right now.

The difference then was the Fed contained the damage with rates at zero for an extended period of time. That is not where we are today, while most of the geopolitical and economic problems continue to rage. The dollar is under attack from BRICs, while Iran and Russia are setting up infrastructure in South America.

That all said, even though the market is pricing in “no hike” from the Fed next week, I think traders need to remain vigilant and believe there is a chance they very well could deliver another 25 basis point increase. While I hope I am wrong, it may not be the last rake hike.

Another big problem that no one seems to be talking about? There are no deals getting done on Wall Street.

Everyone knew back then that rates at zero helped push new public offerings. Companies going public was a daily occurrence, but that party ended two years ago with the SPAC mess.

Our Lean

Yesterday started off in a similar fashion to other recent trading days. The S&P sold off, found a low, then ripped higher in the afternoon. It’s why being the “pessimistic bull” that I mentioned yesterday is paying off.

The big question this morning is, will we see another ES upside gamma squeeze? I would think not, but it doesn’t matter what I think — it’s all in the options open interest.

Our Lean: the ES and SPX are up against 4300. Regarding the latter, here are three of its last four session highs: 4299.28, 4299.19 and 4298.01. I have had a hard time with FRY-days so while I think we can see higher prices, the overall pattern suggests buying the 20 to 30 point pullbacks.

MiM and Daily Recap

The ES traded down to 4262.75 on Globex and opened Thursday’s regular session at 4272.50. After the open, ES traded up to 4277.50, dropped down to 4264.50 (just above the Globex low) at 9:55 and then traded up to 4282.75 at 10:33. From there, it stutter-stepped all the way up to 4298.50 at 12:31. After the early low and rally to the high, the pull backs were limited in scope. The ES pulled back to the 4283.50 level at 1:51 and then rallied back up to 4298.75 at 3:14 and back-and-filled in a tight 4-point range until the ES popped up to ~4299 as the early MIM showed $73 million to sell.

The ES traded 4300 as the 3:50 cash imbalance showed $2.1 billion to buy, popped to 4302.50, pulled back to the 4297 area and traded 4297.75 on the 4:00 cash close. After 4:00, the ES traded up to the 4298.25 area and settled at 4298.25 on the 5:00 futures close, up 24 points or +0.56% on the day.

In the end, it was pretty much a carbon copy of Wednesday’s trade but to the upside. In terms of the ES’s overall tone, it was firm but not as much as the NQ was. In terms of the ES’s overall trade, volume was a little lower at 1.66 million contracts traded.

Technical Edge

S&P 500 — ES

Remember, contracts are rolling as next week is quad-witch expo. As such, some levels may be different. Just extrapolate the pattern in that case.

If you’re on the June contracts, 4300-05 is key on the upside. Above it could open the door to the 4336 area.

On the downside, yesterday’s low at 4262.75 and the 10-day ema are key levels to hold as support.

For those onto the September contracts, it looks like this:

SPX

The SPY and SPX finally tagged the 10-ema on the H4 chart and ripped higher off that level. Patience paid for the active traders around that mark. 30-40 points on the SPX is no laughing matter for those that catch it. For instance, the SPX 4275 calls went from a low of roughly $3 to a high of almost $23 during the session, a 7.5x return.

As for today’s levels:

SPY

The SPY doesn’t “have” to do anything, but it would be helpful if it would give us a range break below $426 or above $429.

NQ

QQQ

Excellent response right off the open for the QQQ. Let’s see how it handles the $355s. Above this zone puts the $357.50 highs in play, then a push toward $360.

On the downside, below the two-day low (~$348.20) and last week’s low are in play at $346.50.

CVS

A possible short setup here in CVS as shares retest the prior Q1 low, along with the 50-day and 10-week moving average. If this was flipped — a retest of the Q1 high and the 10-week and 50-day moving averages — we would be buyers.

First targets $70.50 to $70.70 – small trim (20% to 25%), ~$70 real trim (likely down to 50%), out 2/3 of the trade if we see $68.50 to $69.

Stops are a little different. $72.50 to $73 if running tight. $74 is trading w/ a loose stop.

if using puts, I would price for full loss.

Open Positions

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM and AMZN.

Go-To Watchlist

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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!