Fed Triggers an Avalanche of Selling

And now the jobs report is on tap.

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Our View

Well, the Fed headlines finally came to roost, as they echoed the possibility of no rate cuts this year and NVDA read into it before the headlines even came out — down 3.4%. 

I was right to call for selling the open/early rally but like everyone, I became complacent even in the face of knowing how much the markets were up and knowing that the Fed would come clean on the cuts. How in the world can they increase money supply and lower rates? They can't, we don't need to hear the Fed say there are higher energy and food costs — we are living it. 

As I say all the time, I’m not an economist and I get it — the no, shoulda, woulda, coulda — but who knew President Biden was going to throw a monkey wrench into the markets when he demanded that Israeli Prime Minister Benjamin Netanyahu do an immediate cease-fire in Gaza and warned of conditions for future support hinging on protecting civilians and aid workers? 

It was a trifecta of bad news that the markets could not overlook. Funny how the markets go from totally quiet and some of the lowest volume of the year to the ES dropping 116 points.

Our Lean

I think things are really heating up. From the Philippines to Taiwan and China to Russia, Ukraine, and NATO, to the Red Sea and US warships shooting down Yemen-launched Houthi drones, to Israel and its ongoing war in the Gaza and Israel bracing for Tehran’s response after the deadly Damascus strike, to oil hitting its highest level since October. It’s no surprise that gold set another record above $2,300, Bitcoin closed up 2115 at 68,420, and bonds and notes rallied on the day too. Everything is moving. 

Our Lean: You have to roll with the punches. I said yesterday that Tuesday's rally changed the direction. Then we followed through on the gap-up open only to drop sharply, showing how fluid things have become. 

The ES went out at a steep discount to the S&P cash, which means it should rally on Globex but that should change with the Global markets open up. It’s jobs day and as much as I hate saying this I think if the ES were to gap higher on the open today it would be a sale. If the ES gaps way lower on Globex volume of 300k to 350k I would have to buy it for a trade and use a stop, but my gut says this wake up call isn't over. 

MrTopStep Levels:

MiM and Daily Recap 

ES Recap

After Wednesday's big reversal and late rally, the ES picked up where it left off, rallying up to 5305.00 on Globex and traded 5305.25 on Thursday's regular session open. After the open, the ES traded up to 5307.00 and slowly pulled back to the VWAP at 5291.50 with plenty of Fed speakers on tap that day. 

After the drop, the ES had one last up-tick to 5294.75 when a headline hit from the Fed's Kashkari saying "It's possible the Fed won't cut this year if inflation stalls" and the ES dropped down to 5267.50 at 2:11, slid down to the 5256.00 level, traded 5265.25 and then dropped down to 5338.50 at 2:31, traded 5243.00 and then sold off down to a new low at 5231.50 at 2:32. After the low, the ES rallied up to the 5247.75 level and dropped down to a new daily low at 5228.50 at 2:45, did a 10 minute back-and-fill from 5235.50 to 5240.00 and then sold off down to a new low at 5216.00 at 3:01 and then traded up to 5228.50 at 3:09 and sold back off down to another new low at 5202.50 at 3:32. The ES traded up to 5209.50 and then traded down to the put wall at 5200.00 and traded and continued to trade down to 5094.25 at 3:43 and then popped back up to 5211.00 at 3:45. 

The ES finally traded 5107.00 as the 3:50 cash imbalance showed $3.3 to buy, traded up to 5208.75 and 3:55 but traded 5097.50 on the 4:00 cash close. After 4:00 the ES sold off down to a new low at 5192.50 and settled at 5197.00 on the 5:00 futures close, down 72 points or 1.37% and down 116 points for the day’s high. The NQ made a high at 18,568.00 and sold off down to 18,055.25 and settled at 18,072.50, down 300.75 points or 1.64%.   

In the end, it was a short-lived rally that was kneecapped by the weakness in NVDA and bushwhacked by the Fed headlines about no rate cuts in 2024. In terms of the ES's overall tone, it was a very ugly showing. In terms of the ES's overall trade, volume was low until the flash crash: 223k traded on Globex and 1.612 million traded on the day session for a total of 1.835 million contracts traded.

S&P 500 — ES

ES Daily

ES Weekly

Technical Edge  

  • NYSE Breadth: 26% Upside Volume

  • Nasdaq Breadth: 37% Upside Volume

  • Advance/Decline: 33% Advance

  • VIX: ~16.50

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!