ES Keeps Climbing, But for How Long?

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Our View

The ES sold off during the overnight Globex session down to 5909.25, then rallied to 5991.25 and opened Tuesday's regular session at 5943.50. From there, it settled into an upward grind all the way up to 5987.25. (NVDA +3.10%, META +0.11%, MSFT +0.81%, APPLE +1.7%, AMZN +1.05%, GOOG -0.90%, TSLA +3.31%)

I'm all about following the programs, and the program that started on Monday followed through into Tuesday’s trade—until after the ES made its high at 5991.25. It traded sideways until around 2:50, when several 500-lot ES sell orders started showing up, beginning at the 5948.50 level and down to 5981.50. Initially, the ES absorbed the selling, but as the total sell volume increased, the ES began to soften. Then the NQ started going offered, and the ES dropped to the 5868 area.

Several years ago, there was an ES trader who cleared through Gelber Trading in Chicago—a full clearing member of the CBOT and the CME. He had an account that traded the ES, and he went by the name “The Crazy Russian.” He had an uncanny way of boxing in the ES by layering in 1k-lot offers and bids. For several months, people thought he was connected to the Fed. In reality, he was a young trader from Chicago of Russian descent, who had worked on the CME floor for five years and developed a trading system. I’m not sure whether he started losing money or someone reported him to the NFA or CFTC, but he just disappeared.

My S&P desk used to execute large SUP contracts from when the multiplier was $500—buying and selling 20k ES at a time. I didn’t execute those orders myself; a guy from Spear, Leeds & Kellogg (Goldman) did. I would see the hedge fund’s direct line light up and cue John to sell the ES up on Globex, and the $22 billion fund would fire off anything from 2.5k ES to 20k at a clip. It was different back then. The ladder going into the last hour would thicken up, and at times you could sell total bids of 15k in 5–6 ticks or 20k ES offered in 8 ticks.

I get it—a lot has happened since then. The credit crisis, clearing firms blowing up, and the flash crash have all contributed to the overall decline in the ES's daily volume, like yesterday’s uninspiring 1.1 million contracts traded.

I bought yesterday’s open like I said I would in the lean. Recently, buying the gap-down has been a high-percentage trade. The ES rallied 10 bucks, reversed, and I got out at a small profit. The ES rallied again, I tried to sell it, and it did nothing but go higher as the tech buy program showed back up.

If there’s been one pattern to latch onto since the ES started going up in May, it’s either buying the lower opens or the early weakness. Whatever your view on the US stock market is, you can’t hide from the $1 trillion a year in interest on the national debt. I’m going to say we don’t need to hear from any more talking heads, we’ve heard it over and over: the US is heading into an economic crisis. And for the most part, it’s not a question of if, but when.