Will We Get A Low Going Into Next Week?

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Our View

Lately, Our Lean has been to look for higher prices and the PitBull’s Thursday/Friday low the week before the December Triple Witching options expiration and we saw both. 

I have to be honest, I sold 1 ES just before the open at 4598.00 — two ticks from the high — and all I had to do was put in a stop and ride it all day, but that's not what I did. I was buying and selling the ES all day and ended up down on the day when I made some wrong-way bets on the closing direction. I told myself to follow the advice I have been giving people about trading less and picking my spots better in December but I didn't follow my own advice.

Over the last several years there has been a major emphasis on following institutional money flows and option positioning. These two combined can cause extreme movement when the markets are too long or too short. Below is an excerpt from one of GS's research departments explaining CTA bond positioning. 

On the stock side, we think they have used up a good share of the buying power over the last few days and despite moving higher, there has been $4.5 billion sold on the last two closes. 

From Goldman:

The latest CTAs are flat rates...What a wild ride that was. BOND CTA UPDATE: CTA remain buyers of global rates as short and medium-term signals continue to flip and remain positive. Over the past week, we estimate CTAs bought $55mm DV01 of global rates bringing positioning to SHORT $5mm DV01. 

Current baseline weekly forecasts indicate CTAs will rebalance LONG over the next week as they buy an additional $36mm DV01. While longer-term momentum signals remain far from threshold levels, all of our medium and short-term signals are either positive or at threshold levels.