Buy-the-Dip Crowd Hammered in Two-Day Selloff

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Our View

Yesterday was a vicious reversal. My problem is I don’t trade my warnings. For months I have warned about everything from the US military being too spread out to the Fed's BS about lowering rates to the government borrowing $1 trillion dollars every 100 days…

The only thing I can say is this is unsustainable. And when you throw in the headlines it becomes a giant algorithmic program.

When I sold one of last week's gap-up openings and talked about the gap rule, PR — a member in the MTS chat — asked what the rule was. I said it's one of the simplest rules in my trading toolbox:

Sell big gap-up opens when the ES is in a downtrend, especially when there is 300k+ ES contracts traded on Globex. The other part of the rule is you use a stop above the highs, then cover half when it moves in your favor and hold the other half. 

I sold the open yesterday, but after the ES fell I didn't stay with it and tried several times to buy it and then sold the NQ (Nasdaq futures). I'm sure it was a rough day for a lot of folks but just think of what this will look like in the summer and into the fall as the election nears. 

Our Lean — Danny’s Trade

This is Danny Riley’s personal trading plan for the day.

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MiM and Daily Recap

ES Recap

After rallying into Friday's close, the ES picked up where it left off, rallying up to 5213.00 on Globex and opening Monday's regular session at 5211.25. After the gap up, the ES sold off down to 5201.75 at 9:40  rallied up to 5212.75 at 9:50, pulled back to 5205.25, rallied up to a lower high at 5211.00 and that was around the time this Wall Street Journal headline hit: "U.S. and Western officials anticipate that Israel will quickly respond to Iran’s attacks, as soon as Monday." Oil decides to tumble too because unlike stocks and the WSJ, it expects zero escalation. 

The ES sold off down to 5167.75 at 11:15, just short of filling the 5166.75 gap from Friday's close. After the low, the ES rallied up to 5185.50 at 12:00 and then sold off down to 5108.00 at 2:00. Yes there were some bump-ups on the way down, but this was another mini flash crash. After the low, the ES rallied up to 5123.75 at 2:20, then sold off to 5094.00 at 3:20, rallied up to 5211.25 at 3:40 and sold off down to 5100.75 and traded 5100.75 at 3:47. The ES traded up to 5111.50 and traded 5107.75 as the 3:50 imbalance showed $700 million to sell and traded 5103.25 on the 4:00 cash close. After 4:00, the ES traded down to 5097.50 at 4:36 and settled at 5199.75 on the 5:00 futures close, down 63.50 points or 1.23% on the day. 

In the end, it was a big gap-up and a gap-fill crash. In terms of the ES's overall tone, it was scary bad. In terms of the ES's overall trade, volume was high: 387k traded on Globex and 1.771 million traded on the day session of a total of 2.158 contracts traded. 

Technical Edge

  • NYSE Breadth: 21% Upside Volume 

  • Nasdaq Breadth: 28% Upside Volume

  • Advance/Decline: 15% Advance (!)

  • VIX: ~18.50

    • 6-month high

S&P 500 — ES Futures

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Guest Post — Tradrr 

(To learn more about Tradrr, please visit here)

Focus this week on the 10-yr note futures as their respective yield hits past 4.6% alongside big bank earnings and fed speakers ready to cause some volatility across the board. The main point being use ZN as your anchor this week as a gauge for volatility.

  1. Beginning the month of April with a strong showing of sellers alongside equities leaving us with excess at the March highs attributed to solid economic data and sticky inflation figures resulting in a jump of the 10yr yields by 12bps to 4.33%.

  1. Balancing act for the bulk of the first week of April established our point of control which was then tested as comments out from Fed Kashkari stating the possibility for rate cuts to not occur should the progress on inflation stall.

  1. Fed Powell set to speak at a "fireside chat" between himself and BoC Governor Macklem regrading their perspective on the economic outlook for their countries with the bond cash session Monday closing us below the 2nd std deviation of the rolling month profile gives an opportunity to gain some potential ground and drift back higher should Powell state anything contrary to the assumption set by Kashkari otherwise expect a chop fest to build some interest for lower.

Economic Calendar

For a more complete Economic Calendar see:

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!

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