End of the Year Rebalances: Sell Stocks, Buy Bonds

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Our View

Unlike most trading days over the last 8+ weeks, there was definitely two-way price action on Wednesday. That can be attributed to the end-of-the-year rebalance. 

In the last two sessions, the NYSE imbalances have sold $5 billion, while the bonds traded up to 125.30, up more than 18 points (or 17.5%) from its October 23rd low. Had the ES not rallied 12 points after the cash close, both markets would have closed in the direction of the end of the year rebalance: buy bonds/sell stocks. 

The case for taking more investment risk in 2024

Against a friendlier macro backdrop, the case for adding more risk to investment portfolios may be rising. “The business cycle in general is supportive,” says Goldman Sachs Research's Christian Mueller-Glissmann on Goldman Sachs Exchanges. “We want to be invested going into next year. We're neutral equities, neutral bonds, and we've downgraded cash from an overweight. And so to some extent, we're going back to a 60/40 portfolio.”

And while stocks have moved higher in recent weeks, investors should use any market setbacks to buy more equities. “One of the reasons why we said it's time to be invested next year is also that we expect lower risks from multi-asset portfolios, because you actually have more diversification,” Mueller-Glissmann says.

From an asset allocation perspective, Goldman Sachs Asset Management's Alexandra Wilson-Elizondo is recommending that investors stay invested in stocks and be long on government bonds, but be cautious on corporate bonds. “Inflation coming down and moderate levels of growth are good for equity markets,” says Wilson-Elizondo. “And typically, going into a Fed cutting cycle, large-cap equities do quite well.”

Goldman Sachs

Our Lean — Danny’s Trade

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MiM and Daily Recap

ES Recap

The ES traded up to 4830.00 on Globex and opened Wednesday's regular session at 4822.25. After the open, the ES rallied up to 4829.00 at 10:07, sold off 11 points down to 4818.88 at 10:55, and then rallied 17 points up to 4835.00 at 1:06. After the high, the ES back-and-filled in a 4 to 6-point range until the ES dropped down to a 4816.50 double bottom at 2:11, rallied back up to 4518.00 at 2:27, and pulled back down to the 4819.50 at 2:58.

The ES traded back up to 4828.00 at 3:37 as the early NYSE imbalance showed $64 million to buy and then sold back off down to the 4821.00 level at 3:45 and traded 4822.50 as the final 3:50 cash imbalance showed $1.9 billion to sell to and traded 4834.75 on the 4:00 cash close. After 4:00, the ES traded up to 4836.50 at 4:14 and settled at 4834.75 on the 5:00 futures close, up 7.75 points or 0.16% on the day.

In the end, part of the end-of-the-year rebalance showed up yesterday, buying bonds and selling stocks. In terms of the ES's overall tone, it's ridiculously overbought. In terms of the ES’s overall trade, volume was higher than Tuesday, but still low: 116k traded on Globex and 834k traded on the day session for a total of 950k contracts traded.

Technical Edge

  • NYSE Breadth: 56% Upside Volume

  • Nasdaq Breadth: 84% Upside Volume (!)

    • Back-to-back 80%+ upside days

  • Advance/Decline: 60% Advance

  • VIX: ~12.50

S&P 500 — ES Futures

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Guest Post

PTG / Taylor 3 Day Cycle

Author: David D Dube’ (a.k.a. PTGDavid)

Prior Session was Cycle Day 1 (CD1):  This session did produce a relatively shallow decline as price held Line-in-Sand (LIS) 4820 on pullback and also fulfilled initial upside target (4835) as outlined in prior DTS 12.27.23 briefing. Prior range was 20 handles on 949k contracts exchanged. 

 …Transition from Cycle Day 1 to Cycle Day 2

This leads us into Cycle Day 2 (CD2): Santa Claus Rally continues to hold firm as we enter the final two trading days of 2023. Low volumes (thin to win) are supportive of new highs into final trading hours on Friday.  As we noted in prior briefing..."This is definitely NOT the time to be playing “catch-up” performance. Stay disciplined and in-alignment with intra-day forces. NO HEROES!"  As such, scenarios to consider for today’s trading.

Bull Scenario: Price sustains a bid above 4830, initially targets 4845 – 4852 zone. 

Bear Scenario: Price sustains an offer below 4830, initially targets 4820 – 4815 zone.

PVA High Edge = 4827       PVA Low Edge = 4820         Prior POC = 4826

*****The 3 Day Cycle has a 91% probability of fulfilling Positive Cycle Statistics covering 12 years of recorded tracking history.

For more detailed information for both bullish and bearish projected targets, please visit: PTG 3 Day Cycle and/or reference the Cycle Spreadsheet below:

Link to access full Cycle Spreadsheet  > > Cycle Day 2 (CD2)

Thanks for reading,

PTG David

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!

End of the year rebalances, Sell Stocks Buy Bonds

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