Bulls Remain in Control

Buy-stops are building

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Our View

I know the floors are closed, but a few things have not changed. 

When the ES backs-and-fills for 3 or 4 days in narrow ranges with historically low volume, a few things happen. First, retail tends to get short in narrow ranges; they disregard the trend, and instead of buying the dips, they sell them and then layer in buy-stops. When this happens, the algos sniff out the weak hands and run the buy-stops. 

The other part is we already had the sell-off, and the trend has not changed; yes, the ES and NQ sold off / pulled back, but zoom out. The Nasdaq rallied more than 40% in 2023 and at this year’s high, it was up 10% YTD. The ES is now back within 1% of its record high following a rough April. I can't rule out some type of sell-off again, but that's not happening now. 

The markets pulled back a bit, but the larger, more dominant theme has been higher. 

We always talk about the ES and NQ, but the real star has been the YM (YMM4) Dow futures, which closed higher for the 7th day in a row and has gained 1726 points or 4.6% in that stretch — its longest winning streak of the year. The YM settled at 39,565, up 370 points or +0.94% on the day. The rally is a sign that the April pullback is now in the rearview mirror. 

Here are some stats regarding the Dow from HandelStats: 

If you think the YM has gone far enough, think again: There was 12 day winning streak in 2023.

Our Lean

Over the last week, we have seen a very oversized rotation into the DOW, and shares of industrial and transportation companies have risen sharply as traders continue to pile into rate-sensitive sectors. There hasn’t been much economic data to shift sentiment in the stock market following last week’s cooler-than-expected April jobs report. 

A lot of the rotation is due to people still thinking there are rate cuts coming this year. According to the CME’s Fed Futures, there is now a 50% chance of a rate cut this year. I say boo hoo to that. Until gas prices, food prices, overall inflation, and rates fall, it's a moot point, and if they try to lower rates before that, all hell will break out. 

Our Lean remains the same. You can sell the rips and buy the dips, or just be patient and buy the pullbacks, which is what I am going to do. Remember, today is options FRYday and there are a lot of buy stops to run on the upside. 

As for my levels:

Support: 5233, 5226, 5220.50, 5216, 5212, 5208, 5204 to 5200 (Where I would add to my current position)

Resistance: 5242, 5247, 5254, 5258, 5269, 5373, 5284 (where I will exit half my position), 5290, 5304

MrTopStep Levels:

MiM and Daily Recap 

The ES traded up to 5217.25 on Globex and opened Thursday's regular session at 5211.25, traded up to 5216.25 at 9:36, dropped down to 5204.25 at 9:43, and then rallied up to 5221.50 at 10:13. From there, it pulled back to 5212.75 at 10:15, rallied up to 5232.75 at 11:12 and then sold off down to 5220.75 at 12:03. Over the next hour and six minutes, the ES did a slow walk up to the 5634.00 level at 1:09, then pulled back to the 5225.50 at 1:21. 

After the down-tick, the ES slow-walked up to a 5238.25 double top at 3:10 and started to pull back to 5233.50 at 3:47 as the NQ did another late-day sell. The ES traded 5234.75 as the 3:50 cash imbalance showed $1 billion to buy, traded up to a new high at 5240.00 and traded 5239.00 on the 4:00 cash close. 

After 4:00, the ES sold off a few points and settled at 5240.50, up 30.5 points or +0.59% and the NQ settled at 18,220.75, up 65.25 points or +0.34%. US crude futures gained 0.3% to $79.26 a barrel, the 10-year Treasury yields settled slightly lower at 4.448%, gold (GCM4) futures settled at 2,353.1, up 30.8 or +1.38%, Bitcoin settled at 63,696, up 4,696 up 585 or +0.94% — everything is moving. 

In the end, all the recent back-and-fill and low volumes made for a decent pop. In terms of the ES's overall tone, it was firm. In terms of the ES's overall trade, volume was low: 158k traded on Globex and 892k traded on the day session for a total of 1.050 million contracts traded. 

Technical Edge  

  • NYSE Breadth: 72% Upside Volume

  • Nasdaq Breadth: 62% Upside Volume

  • Advance/Decline: 70% Advance

  • VIX: ~12.75

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:

Here’s a snippet from them: 

As we have been outlining, this equity resistance range in the 5,200 area lines up with implied vol nearing lows, and upcoming catalysts of data (inflation print(s) next week), OPEX (5/17), & NVDA ER (5/22). Therefore, both today and Monday serve as 'freebies' for 0DTE traders to engage freely, unaffected by the influences of longer-dated flows. You get a sense for this by looking at Monday's SPX IV (the day before PPI/CPI data) - it is a measly 7%, which implies an SPX move of just 44bps!

Looking past that incredibly low single IV point, you can see that longer dated IV's are skidding along 90-day lows, too, which suggests traders do not have much concern for the catalysts outlined above. This suggests that while there are some reasons for consolidation next week, traders see little major risk out in time.

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!