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(Free) The Calm Before the Storm?
The VIX was trading in the $13s despite ‘hell week’ being on tap
Danny Riley
June 12, 2023
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Our View
The S&P has been up four weeks in a row as it heads into “Hell Week.”
Today’s a relatively quiet day, data wise. However, the CPI report and the first day of the Fed's two-day meeting is on Tuesday. On Wednesday, we’ll get the PPI report and the Fed's rate decision. Finally, “Fry-Day” features the June triple witching. Don’t forget that the quarter Opex chop can start a few days early.
While the rally may be tied to 8 to 12 stocks, it officially pushed the S&P out of the bear market last week, while the Nasdaq is now on its longest winning streak since 2019. The coming week will be a big test for the S&P and Nasdaq and whether these indices can hold.
The S&P 500 finished the week with a current year-to-date gain of 12%. The equal-weighted version of the S&P 500, which gives every company equal weighting rather than basing their weighting off of their market capitalization, ended the week with ~2% gain for 2023.
Our Lean
This is Danny Riley’s personal trading plan for the day.
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MiM and Daily Recap
The ES traded up to 4305.50 on Globex and opened Friday's regular session at 4305.25. After the open, the ES traded 4305 and basically rallied all the way up to 4325.50 at 10:34, traded back down to 4310.50 at 10:52, up-ticked to 4322.25 and then dropped down to 4298.50 at 11:34. After a little back-and-fill and a new low down to 4294 at 12:02, the ES traded back up to 4213.50 at 2:41 and sold off down to 4304.25 at 2:41.
After a push back above the VWAP at 4310.75 at 3:00, the ES pulled back to the 4302.50 level at 3:42. The ES traded 4306.50 as the 3:50 cash imbalance showed $160 million to buy and traded 4297.75 on the 4:00 cash close. After 4:00, the ES up-ticked a few points and settled at 4304.75 on the 5:00 futures close, up 6.5 points or 0.15% on the day. The NQ settled at 14,566.25, up 63 points or +0.53% and the RTY settled at 1,868.10, down 15.20 points or -0.81% and crude oil settled at 70.47, down 0.97% on the day.
In the end I want to explain something…
The Opening Print isn't just about highs and lows. Unlike most newsletters, this one tries to put you in the price action, providing a real feel for the markets. Mr Top Step’s Sidd and TraderDave started including 'option gamma' in their trading toolbox a few years ago, but since then the dollar value of the options expiring started hitting $3 trillion.
Here is the definition: Gamma (Γ) is an options risk metric that describes the rate of change in an option's delta per one-point move in the underlying asset's price. Delta is how much an option's premium (price) will change given a one-point move in the underlying asset's price.
This my friends is changing how the markets function. 6 out of the last 9 Fridays have been higher (so have 9 of the last 12). No matter what tools you have, option gamma FRYdays needs to be part of it.
In terms of the ES’s overall tone, it closed lower but not by much. In terms of the ES’s overall trade, volume was on the high end because of the ESM/ESU roll (spreads), with 2.09 million contracts traded.
Technical Edge
NYSE Breadth: 43% Upside Volume
Advance/Decline: 37% Advance
VIX: ~$14.50
Speaking of some stats, Fridays have been on a roll this year with the SPX finishing higher about 65% of the time. However, that’s roughly in-line with Thursday and both figures actually lag Monday, which has had a 68% win rate so far this year.
That’s interesting and not what I expected. Even more interesting?
Despite a ~⅔ win rate Thursday-Monday, the SPX actually sports a win rate of just 35% on Tuesday and Wednesday.
We’re in a tough spot now for individual stock trades where the R/R just isn’t as attractive. Let’s see how today shakes out and if better opportunities emerge this week.
Odd that the VIX was trading 13-and-change when we have such an eventful week on tap.
SPY
Upside Levels: $429.50, $432, $433.50
Downside Levels: $428-$29, $426, $423 (gap fill)
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Open Positions
Bold are the trades with recent updates.
Italics show means the trade is closed.
Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be break-even (B/E) or better stops.
** = previously mentioned trade setup we are stalking.
Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO, UBER, CRM and AMZN.
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Economic Calendar
