Fed Speakers Will Feed the Algos This Week

S&P 500 comes back to life

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Our View

The ES and NQ sell off for three weeks and then rally 130 and 664 points in less than two days, respectively. 

My old rule applies again — it takes days and weeks to knock the S&P down and only one to bring it back. It's how the markets work. Once everyone thinks lower prices are coming after the markets have already sold off, it's over. 

Or is it? In my opinion, I also don't think the push higher will go without some bumps in the road, but the feel or tone of the markets has changed. 

Maybe I’m wrong, but I don't think the index markets rallied so much in the last two days because they were oversold or at a support level. Maybe that was part of it, but I think everything has a shelf life. 

You have to go back to the rally after Powell said the Fed expects to lower rates three times in 2024 and stocks — particularly tech — rejoiced. But when the Fed finally came clean that the outlandish rate cuts may be less likely and then acknowledged that they could be off the table entirely, the markets reacted in kind by selling off. 

I was the one that said, “now that the Fed meeting is out of the way, we can now look forward to jobs FRY-day and the options expiration.” Yes, the ES made a new low early Wednesday — what would the Fed say that the markets didn't already know? Thus the markets rallied, but I don’t think it's going to cure the stickier-than-expected inflation that pushed 10-year Treasury yields to the steepest one-month gain since September 2022. Yet the stock market rallied as the 10-year yield fell to 4.569% — although it's still near a two-decade high, with the high still holding firm from October.

As I have said many times, I’m not an economist. But the pain game is not over until the data shows continued improvement in inflation and the Fed starts cutting rates. Here is a link to the JP Morgan report on the May Fed meeting.

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

The ES traded up to 5152.00 after U.S. job growth totaled 175,000 in April, much less than expected, while unemployment rose from 3.8% to 3.9%. The ES opened FRYday’s regular session at 5153.25. 

After the open, the ES traded 5155.75, sold off down to 5137.25 at 9:38, and then rallied up to a new high at 5166.75 at 10:00, sold off down to 5138.25 at 10:05, rallied up to a 5149.50 double top at 10:07, and pulled back to the 5133.75 level. From there, it back-and-filled a bit and then sold off down to the low of the day at 5127.75 at 10:26. 

After the low, the ES rallied back up to 5143.75 at 10:30, sold off down to a higher low at 5128.00 at 10:35, rallied up to 5145.50 at 10:43 and then sold off down to 5126.75 at 11:10. The ES rallied up to 5161.75 at 2:31 and traded in a 4 to 6 point range until 3:49. Going into the few minutes, the ES traded 5153.75 as the 3:50 cash showed ~$900 million to sell, traded 5052.75, rallied up to 5162.25, traded 5154.25 on the 4:00 cash close and settled at 5161.50 on the 5:00 futures close, up 70 points or +1.37%. The NQ settled at 18,025.50, up 375.75 points or +2.13%, the 10 yr note (ZNM4) settled at 108'240 +0'125 points 0r +0.36%, gold (GCM4) settled at 2,310.10, +0.5 points or 0.02%, crude oil (CLM4) settled at 77.99, down -0.96 or -1.44% and Bitcoin settled at 63,365, +3,600 points or +6.02% on the day. 

In the end, it was a much quieter day. In terms of the ES's overall tone, it was firm. In terms of the ES's overall trade, volume was steady but not high: 306k traded on Globex and 1.259 traded on the day session for a total of 1.565 million contracts traded.

Technical Edge

  • NYSE Breadth: 67% Upside Volume

  • Nasdaq Breadth: 73% Upside Volume

  • Advance/Decline: 75% Advance

  • VIX: ~13.75

S&P 500 — ES Futures

ES

ES Weekly (Levels in Our Lean section)

NQ

NQ Weekly

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!

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