(Free) Range Trade (Somehow) Continues to Tighten

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Our View

Janet Yellen said that the lack of a budget deal is already weighing on the US economy.

While we have seen this act before, I think it's odd that all day yesterday there was a non-stop rotation out the the ES (down) the Dow (YM - down) and the Russell 2000 (RTY - down) with the NQ up 15 points or 0.11%. I admit that the size of the gain is not impressive, but for the other three to end the day right near their lows for the day and for the Nasdaq to end higher on the session says something.

There were several late-day headlines yesterday, from Biden flying back from the G7 early to Kevin McCarthy and the constant debt-ceiling headlines. That was after navigating all the Fed-heads throughout the day (with five speakers).

Despite yesterday’s rough ending, the S&P cash (SPX) all but gave us another inside day (although it technically broke the prior day’s low by 0.40 points).

Our Lean

Here’s the deal everyone…

MiM and Daily Recap

The ES made a high at 4155.25 and a low of 4135.25 and opened Tuesday’s regular session at 4138.75. From there, it pulled back to the 4136.50 level and then traded up to 4148.75, dropped down to a new low of 4127 at 10:16 and then rallied up to 4141.50 at 10:44. For the next three hours, the ES back-and-filled around the VWAP at 4138, rallied up to 4237.75 at 12:42 and then dropped down to 4130.25 at 2:43.

After retesting the earlier low, the ES rallied back up to the VWAP at 4139.75 at 3:35, then took out the sell stops under 4130. It traded down to 4123.25 at 3:50 as the final imbalance showed $189 million to sell, hung near the low for a few minutes and then broke down to 4120 after the 4:00 cash close. The ES rallied up to 4130 at 4:29 and settled at 4127.50 on the 5:00 futures close, down 21.5 points or -0.51% on the day.

In the end, there was a very big rotation: buy NQ / sell ES, YM and RTY. That held the ES in a very narrow trading range for a big part of the day. In terms of the ES's overall tone, it was stuck. In terms of the ES's overall trade, volume was on the low side at 1.28 million contracts traded.

Technical Edge

• NYSE Breadth: 17% Upside Volume (!)

  • Nasdaq Breadth: 40% Upside Volume

• Advance/Decline: 19.5% Advance

• VIX: ~$17.50

That DXY note from yesterday was something to keep an eye on and now it’s powering higher again (updated chart below). That said, the S&P basically gave us another inside day as the range continues to tighten.

Retail — HD, TGT & TJX — has been unimpressive thus far and overall, the sector continues to disappoint (chart on that below too).

AVGO gave us another trim yesterday as it trades well. Updated below.

S&P 500 — ES

The upside has been capped by ~4175 (and more recently, by 4160-65). The downside limited to ~4115. We need a break of one of these areas to push the outer edges of the range.

• Upside Levels: 4165, 4170-75, 4198-4206

• Downside levels: 4110-15, 4100, 4080-85, 4063

SPY

Guest Post

PTG Taylor 3 Day Cycle

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

Prior Session was Cycle Day 3 (CD3): Markets continued their balancing "logjam" trading mid-zone for majority of the session, until the final minutes where price aggressively sold down to 4125 lower quartile range edge. Prior range was 31 handles on 1.282M contracts exchanged.

…Transition from Cycle Day 3 to Cycle Day 1

This leads us into Cycle Day 1 (CD1): Battle for directional control continues with price "logjammed"...Violation and conversion of 4125 opens trap door for lower price probes targeting CD1 Average Decline 4097. Failure to breakdown potentially keeps the price range bound until there is a definitive and sustained directional lean. As such, scenarios to consider for today’s trading.

Bull Scenario: Price sustains a bid above 4125, initially targets 4145 – 4150 zone.

Bear Scenario: Price sustains an offer below 4125, initially targets 4110 – 4100 zone.

PVA High Edge = 4142 PVA Low Edge = 4130 Prior POC = 4135

*****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 1 (CD1)

Thanks for reading,

PTGDavid

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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!