Winning Streak Comes to a Halt

Algos helped drive stocks lower on Wednesday

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Our View

I tried very hard not to get into the sell-the-rallies and buy the pullback leans because the ES was just not pulling back. 

At the same time, I had a feeling the ES was long overdue for a drop, but I had no idea the futures would fall as much as they did and as fast as they did. I am not sure why it took so long, but I think it has to do with all the money being put to work at the end of the year. 

Yesterday afternoon’s option flow didn’t help matters, as short-dated expirations helped drive the decline. This article sums it up quite well.

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 15-min recap

The ES traded up to a new contract high at 4824.25 on Globex and then traded down 4807.50 at 9:29 and traded 4809.75 on Wednesday's regular session open. After the open, the ES traded 4808.50 and traded up to 4821.75 at 10:01, pulled back to the VWAP at 4827.00, then to the 4823.00 level, and then made another new all-time contract high at 4827.50 at 10:48. After the high, the ES pulled back to 4821.75 and then traded up to another new contract high at 4830.75 at 1:01 before dropping down to the 4518.00 area at 2:08. The ES then dropped 57 points off the high down to 4773.75 at 2:53. 

The ES rallied back up to 4790.00 and then dropped down to 4761.00 at 3:09. After the low, the ES rallied back up to 4777.75, sold off down to 4767.25 at 3:15 and then rallied back up to 4782.75, before dropping down to a new low at 4759.75 at 3:37 as the early imbalance showed $866 million to sell and traded back up to 4768.75 at 3:46. The ES traded 4767.50 as the cash imbalance showed $1.4 billion to buy, rallied up to 4772.25 and then sold off back to the low of the day at 4748.00 at 3:59 and traded 4750.50 on the 4:00 cash close. After 4:00, the ES sold off down to 4743.25, rallied back up to 4749.50, and traded 4753.25 on the 5:00 cash close, down 65 points or -1.53% on the day and down 87.5 points off the high of the day.

In the end, it was another day of new all-time highs and then a big late-day drop. In terms of the ES's overall tone, it was firm for the first 3.5 hours and then sold off 87.5 points in the final four hours. In terms of the ES's overall trade, volume was extremely low before the ES sold off and nearly doubled in the final four hours: 174k traded on Globex, and 1.434 million traded on the day session for a total of 1.608 million contracts traded.

Technical Edge

  • NYSE Breadth: 9% Upside Volume (!!)

  • Nasdaq Breadth: 21% Upside Volume 

  • Advance/Decline: 22% Advance

  • VIX: ~13.50

    • +9.1% yesterday

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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