Geopolitical Tension and US Debt Continue to Grow
Will the market continue to ignore it?
Danny Riley
October 23, 2023
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Our View
While the focus of the markets is the Israeli-Hamas war and its potential to expand, there is something else expanding. The US federal debt held by the public has skyrocketed by almost 800% since 2000, ballooning from just over $3 trillion to $26 trillion.
As I have always said, I’m not smart enough to know how this is all going to work out, but it really feels like something that's going from bad to worse. Rates, higher for longer, inflation and war. I really think everything that's going on is playing right into the Chinese state planners playbook. Let the US get drawn into a war in the Middle East and then a skirmish in the China Sea and then the US is caught up on multiple fronts.
I have to say something.
I have been holding shorts for over a week, and on most occasions I would be cheering my victories, but I have a hole in my gut. I have never been someone who gets scared and nor do I worry about dying but I worry about my family; I worry about my daughter and her baby that turned three on Sunday. What is this going to look like in 1 year? 5 years? Or 10 or 20 years? It just feels unstable and unsustainable. What I do know is things are evolving quickly.
Despite all that, some are asking if the markets are ignoring the geopolitical risks.
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 Recp 15-min
The ES traded down to 4282.00 and opened expiration FRYday at 4369.50. This is going to be easy — after the open, the ES rallied up to 4302.25 and then sold off down to 4255.25 at 11:35, rallied up to 4274.00 at 11:58 and then sold off to a 4259.25 double bottom at 12:17. From there it rallied up to 4281, dropped down to 4367 at 1:10, rallied up to 4284.75 and then sold off down to 4258.50 at 2:43. The ES rallied up to 4369.00 and then sold off down to a new low at 4253.75 at 3:26 as the early imbalance showed $3.5 billion to sell.
The ES rallied up to 4362.50 at 3:33, sold off down to 4250.00 and traded 4252.50 as the 3:50 cash imbalance showed $1.5 billion to sell and traded 4250.50 on the 4:00 cash close. After 4:00, the ES sold off down to 4243.50 and settled at 4244.50 on the 5:00 cash close, down 58.50 down or 1.36%. The NQ closed down 1.62%, the RTY fell 1.36% and the YM dropped 0.96%.
In the end, it was all downside. In terms of the ES's overall tone, it was very weak. In terms of the ES's overall trade, volume was higher but not as big as Thursday: 343k traded on Globex and 1.887 million traded on the day session for a total of 2.23 million contracts traded.
Below are some posts I put in the MTS Chatroom, along with some responses from members (but with their usernames redacted).
IMPRO: Dboy :(10:29:13 AM) : NQ bid down to 16.5
IMPRO: Dboy :(10:29:40 AM) : don't f-en buy because you're not short
IMPRO: Dboy :(10:29:47 AM) : avoid that game
IMPRO: Dboy :(10:30:03 AM) : 4220 on TAP
IMPRO: [redacted user name]:(10:33:10 AM) : Thanks Dboy, I was trying to hold long on Monday but your posts were so bearish I got out and bought some spy puts
IMPRO: Dboy :(3:23:38 PM) : NLOTC (New Lows On The Close)
IMPRO: Dboy :(3:33:49 PM) : I gotta go with a margarita and NLOTC
IMPRO: [redacted user name]:( 4:01:40 AM) : I was going to cover but when you posted NLOTC, I stayed short and covered half after the 4:00 cash close. Thank you so much and have a great weekend.
Technical Edge
NYSE Breadth: 21% Upside Volume
Nasdaq Breadth: 32% Upside Volume
Advance/Decline: 27% Advance
VIX: ~$22.25 (at 7-month high)
S&P 500 — ES Futures
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.
Economic Calendar
