Will We Get A Low Going Into Next Week?

Markets continue to consolidate

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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.

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 recap 15-min

The ES rallied up to 4598.50 on Globex and opened Thursday's regular session at 4597.25. After the open, the ES traded at 4597.50, sold off down to 4583.25 at 10:04, rallied up to a lower high at 4593.00 and then sold off down to a new low at 4576.50 at 10:27. For the next 50 minutes, the ES back-and-filled between 4584.50 and 4578.25, then broke down to a new 4574.75 double bottom low at 11:46. From there, it popped up to 4477.25 and then sold off down to a new low at 4564.50 at 1:07. 

After the low, the ES rallied up to 4574.75 at 2:03, then sold off down to a new low at 4556.00 at 3:39 as the early imbalance showed $689 million to sell. The ES traded 4558.25 as the 3:50 cash imbalance showed $2.6 billion to sell, traded down to 4552.00 at 3:55 and traded 4556.25 on the 4:00 cash close. After 4:00, the ES drifted and settled at 4555.25 on the 5:00 futures close, down 19 points or 0.42% on the day. 

In the end, all the buying power was used up on the gap open and the ES sold off down to the week's multi-day low in the low-4550s. In terms of the ES's overall tone, it acted tired. In terms of the ES’s overall trade, volume was on the high side: 288k traded on Globex and 1.41 million traded on the day session for a total of 1.707 million contracts traded. 

Technical Edge

  • NYSE Breadth: 45% Upside Volume 

  • Nasdaq Breadth: 57% Upside Volume 

  • Advance/Decline: 48% Advance 

  • VIX: ~13.25

S&P 500 — ES Futures

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Economic Calendar

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!

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