The Selloff Is Putting Us Back Into The Painful Range Trade

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Our View

I am really concerned that the 'summer trade' has already started and that the long slog we have been in may continue for an extended period of time. We had an upside pop last week to get us out of the range, but the trade has been frustrating since then and now we’re falling back into the prior range.

Like I have said repeatedly now, we also are not used to seeing the same ES prices printed over and over again. I wonder with all the money moving out of the US, if it’s weakening the S&P? Well we know one thing, on the days the ES does just over 1 million contracts, it generally creeps higher (thin to win) and in most cases on a big down day, trading volume increases to the 1.6 million to 1.8 million contracts range — which to tell the truth, is also low.

The ES used to do 2.5 to 3 million contracts a day and no one would blink an eye; its all-time volume high is 6.9 million at the height of the credit crisis. Since then, I don't believe volume has exceeded 4.3 million in a single session.

If I asked you if there are more trading accounts back when I was on the floor vs. now, what would be your guess? Initially, I thought more back then, but then I thought about electronic trading and how anybody can open an account. The answer is, there are millions more online trading accounts today, (but my guess is only a small percentage are trading all day).

Our Lean

MiM and Daily Recap

The ES traded down to 4186 on Globex at 9:21 am and opened Tuesday's regular session at 4187.75. From there, it traded 4185.25 and rallied up to 4198.50 — the VWAP — at 10:00, dropped down to 4186.50 at 10:16 and chopped around under the VWAP for the 2 next hour and 20 minutes when the futures finally broke down to 4175.50 at 12:50. After the low, the ES rallied up to 4186.25 and then broke down to another new low at 4168.50 at 1:31 and chopped around in a narrow range. The ES then sold off down to 4153 as the budget talks broke down.

After the low, the ES chopped in a 4156 to 4167 range as the early imbalance showed $180 million to sell. The ES traded 4163 as the 3:50 cash imbalance showed $400 million to sell, traded up to 4165 and traded 4158 on the 4:00 cash close. After 4:00, the ES pulled back to the 4156.50 area and settled at 4159.25 on the 5:00 futures close, down 45.75 points or -1.09% on the day.

In the end, it was a one-way street to the downside. In terms of the ES’s overall tone, it was weak but the NQ was weaker, down 1.22%. In terms of the ES's overall trade, volume picked up as the day wore on with 1.62 million contracts traded.

Technical Edge

• NYSE Breadth: 43% Upside Volume

• Advance/Decline: 38% Advance

• VIX: ~$19.50

Getting some turbulence after yesterday’s decline. I don’t think the market is necessarily paying attention to the dollar (DXY) or 10-year yields (TNX), but they were a warning sign yesterday. The VIX is now up more than 20% in four days as our short-lived upside range break starts to fizzle out.

With the dip, the S&P is right back down into the zone that drove traders crazy just a few days ago.

SPY

• Upside Levels: Bulls want this back above $415-16

• Downside Levels: $412.50 is key (21-day sma and 50% retracement). $410

S&P 500 — ES

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 B/E or better stops.)

• ** = previous trade setup we are stalking.

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B. Now Add META, AVGO and UBER.

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Guest Post

Topic: PTG /Taylor 3 Day Cycle

Author: David D Dube (PTGDavid)

Prior Session was Cycle Day 2 (CD2): Markets were once again held hostage to the news flow out of DC regarding the Debt Limit negotiations, which only proved how our elected officials are totally dysfunctional. Traders got impatient and decided to take the sell-side, pushing price below CD1 Low, all the way down to 4150 handle,. This now places price back within the lower multi-day composite range. Prior range was 69 handles on 1.618M contracts exchanged.

…Transition from Cycle Day 2 to Cycle Day 3

This leads us into Cycle Day 3 (CD3): Price is now well below the CD1 Low (4186) and threatens a "failed" 3 Day Cycle. Bulls have a substantial hill to climb to recover this level. Of course anything and everything can happen, so we'll maintain our discipline to stay in alignment with the dominant forces. As such, scenarios to consider for today’s trading.

Bull Scenario: Price sustains a bid above 4170, initially targets 4185 – 4190 zone.

Bear Scenario: Price sustains an offer below 4170, initially targets 4150 – 4145 zone.

PVA High Edge = 4205 PVA Low Edge = 4165 Prior POC = 4195

*****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 3 (CD3)

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!