Can the Bulls Step Up?

End-of-Month is here

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Every week, MrTopStep invites traders to an “Own the Close” contest where the closest guesstimate where the SPX will settle on Friday’s 4:00 cash close.

The winners get a free week's access to the MrTopStep Chat and trading tools. Enter your guess now!

Our View

The ES made its low at 9:50 at 5278.25 and made its 5298.25 high at 10:40. 

For the next 2 hours and 15 minutes it chopped up and down and traded back up to the high at 5298.25 at 12:55, then for the next 2 hours and 35 minutes the ES dropped and popped up to lower high at 5297.50 at 3:30.

From 3:30 to 5:00, the ES sold off 29 points to its low at 5268.00. 

I bought yesterday's down open and held the ES for the day. I know they sold the rips yesterday, but they also bought every dip. But late when the ES rallied back up to the highs, the NQ did not participate and that's when I pointed it out in the MrTopStep forum:

  • IMPRO : Dboy :(1:43:12 PM) : nlotc (new lows on the close)

and later I posted this:

  • IMPRO : Dboy : (3:35:58 PM) : PitBull 101 The ES tends to close in the direction it starts out.

I have to admit my early thought was the ES would keep going, but the breath got weaker and weaker as the day rolled on and after the auction you could feel things start to weaken as the 10-year note yield rose to 4.623% — from 4.542% Tuesday — the highest level since April 30th.

Our Lean — Danny’s Trade

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

To get this delivered daily, please consider upgrading to a paid membership.

MiM and Daily Recap

After closing on an up-tick, the ES sold off down to 5281.25 and opened Wednesday's regular session at 5282.00. After the open, the ES initially up-ticked and then sold off down to 5278.25 at 9:50, rallied up to 5289.00 at 9:55, pulled back to 5284.25 at 10:10 and rallied up to 5292.50 at 10:25 and then made three new highs at 5294.75 at 10:30, 5295.75 at 10:35 and 5298.25 at 10:40. After the high, the ES made a lower high at 5297.50 and then sold off down to 5291.75, rallied up to another lower high at 5296.00 at 11:05 and then sold off down to 5285.50 at 11:20. From there, it rallied back up to 5298.25 at 1:55 and then sold off 11.5 points down to 5288.50 at 1:25 after the 7-year note auction pushed bond yields to their highest level in a month. 

After the low, the ES rallied back up to the 5295.00 level at 1:35 and then sold off down to 5286.75 at 1:45 and rallied up to 5297.50 at 2:00, then sold off down to 5385.00 at 3:15. After the low, the ES rallied back up to back up to 5297.75 ar 3:30 and then sold back off tp 5291.00 at 3:35, rallied back up to 5297.50 at 3:40, sold back off down to 5289.75 at 3:47 and traded 5290.25 as the 3:50 cash imbalance showed $780 million to sell and sold off down to 5381.50 at 3:57 and traded 5287.50 on the 4:00 cash close. After 4:00, the ES sold off down to 5268.00 and settled at 5270.00, down 54.75 points or down 1.3%, the NQ settled at 18,746.75, down 193.75 points or -1.02%.

In the end, the bond auctions have not been kind to the S&P and Nasdaq. In terms of the ES's overall tone, every dip was bought. In terms of the ES's overall trade, volume was steady but not high, 219k traded on Globex and 1.167 million traded on the day session for a total of 1.386 million contracts traded.

Technical Edge

  • NYSE Breadth: 19% Upside Volume (!)

  • Nasdaq Breadth: 39% Upside Volume 

  • Advance/Decline: 15% Advance (!)

  • VIX: ~14.50 

To receive access to the ES and NQ levels, please consider upgrading to a paid membership.

Guest Post — Dan at GTC Traders

The Next 24 Hours: GDP and Core PCE

Many times we all read of a piece of economic news after a release; stating what we already know, and what has already happened.

GDP was … and thus in reaction, markets moved ...

We thought this morning we would do the opposite. Discuss our thoughts prior to the major economic news of the week; the release of GDP and Core PCE (Personal Consumption Expenditures Price Index, Excluding Food and Energy). We are prior the release of these two data points at the time of this writing.

State of Rates Markets

We believe that at present, all 'hope' within the market for higher prices lay in when the market believes a cut in the Federal Target Rate will happen. To put it quite simply for folks who are new, the sooner the market believes a cut in the Target Rate is coming? The the more euphoric the market reaction. A hot (higher) GDP or PCE Core release will be taken as a sign that there is no rate cut on the horizon, and we would expect Interest Rates to fall farther; and equity markets to falter.

At the present time? There is no hope for a rate cut for the June 12, 2024 meeting. In fact the only probability for anything to happen outside of the Target Rate remaining at 525-550 BPS; is for an actual rate hike. Albeit, it is a small 1.1% chance of a hike. But that is the only other possibility the market is giving outside of the rate remaining where it is …

(Source: CME Groups FedWatch Tool)

It should be interesting to see how the data releases change the probabilities for the July 31, 2024 FOMC meeting ...

(Source: CME Groups FedWatch Tool)

GDP Growth Rate is forecast at 1.6%, and the consensus is for 1.3%. Core PCE Month over Month (MoM) for April is forecast at 0.2% and the Consensus is 0.3%.

Ahead of these numbers, Interest Rate Markets has tried to front-run these releases to higher rates, by heading to lower prices. The Three Month SOFR Futures, in the June 2025 term currently rests at 4.63%; and we have been watching this market more than any other as to the markets reaction on rates.

SR3M2025 (SOFR June 2025)

Light, and Hedged Up

In front of these two pieces of news? Our short-term trading desk is sitting at approximately ~+1.74% for the month of May. And quite frankly we don't want to risk any damage that number, so we have gone extremely light.

The only short-term trading position we still hold? Is actually a market we wrote about at some length last week. A long TLT position.

TLT (20 Year+ Bond ETF Derivative)

Doesn't look too good does it?

Well since we are 'light' in our trading book, and in front of the GDP and Core PCE news? We freely announced on May 24, that for the free GTC Sample Portfolio we run in order to 'demonstrate' our thoughts; we were buying an offsetting position in TBF to hedge1 the TLT position. By 100%. Therefore, we haven't been damaged at all by this slide in TLT. In fact? I think per 100, we are up something like 0.18 on the position since that time.

This is very capital intensive in equities. But, we're 'light' in our trading book. TLT was our only position (we did sell a call against the outright position, so there is also option premium that is being pulled on a nearly covered call), so we had the capital to spare and there are advantages to holding onto the position for the next few days.

Our Thoughts, Not Yours

As we have stated our trading approach is to remain light in our trading book. The only position we hold is the TLT 0.85 Covered Call-TBF Position. We are thus nearly flat cash in front of the releases.

We believe that if the numbers come in hot and much higher than expected, we could see the interest rate markets get smashed. Lower prices. Higher Interest rates. And hopes of a rate cut sooner, rather than later; evaporate.

If GDP comes in line at expect this morning? We believe the market will chop back and forth, and wait for Friday's Core PCE inflation release. If GDP comes in very small, we would expect a rally, as the market will gain more hope for rate cute arriving much sooner than it is now expecting.

After we have those numbers in hand and have a better idea of the macro environment we are dealing with; we will have a better idea of how to position ourselves for the month of June, 2024.

But as always? These are our thoughts. Not yours.

1 “GTC Sample Portfolio: A Few Adjustments and a New Purchase” ( https://gtctraders.com/gtc-sample-portfolio-a-few-adjustments-and-a-new-purchase/ )

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!

Subscribe to keep reading

This content is free, but you must be subscribed to The Opening Print to continue reading.

Already a subscriber?Sign In.Not now