Have the Mutual Funds Used Up All Their Money

Charts, Commentary, News, Our View, The Opening Print

chart 04-05-2016

The S&P 500 futures (ESM16:CME) made a high on Globex at 2071.50 Sunday night and opened the 8:30 cash session at 2064.25. Initially the futures sold off, then rallied several times above the VWAP at 2065.50 to make a high at 2066.50 before selling off again down to 2057.00. After that we saw some back and fill action at the 2058.00 to 2060.00 area before moving back up going into 11:00 CT.

Despite the early weakness, the futures rallied back to, and just above, the vwap before starting to come back down just before 1:00 CT. Crude oil, which rallied all the way up to 37.22, showed double sell signals on the CL 300 delta chart at 37.15, and also made 3 separate buys at 36.16, 36.13 and 36.10. One of MrTopStep’s trading rules is that there are ‘three parts’ to the trading day.

3 Parts To the Trading Day


  • Part 1) The overnight Globex session
  • Part 2) The 8:30 open
  • Part 3) What the mutual funds have to buy or sell after 2:00 CT

What happened in part 3 was the futures rallied a bit as the MrTopSteo MiM flipped from over $600 million to sell, to $50 million to buy ( http://closingimbalance.com/ ), with the ESH16 settling at 2057.00 on the 3:15 futures close. During Part 1, the Globex session, the futures sold off as the Asian markets sold off taking the S&P down for the ride. At 6:20 am the low on Globex came in at 2037.75, and is trading 2042.00, down 15.50 handles with 130,000 contracts traded. While I do not know of anyone that breaks up the day in 3 parts I really believe that is how it works. I can’t say for sure the rally is over, but with the futures down so much overnight, it would be my guess that at least initially the futures see some type of uptick in the beginning of Part 2, the 8:20 open. As we all know Mondays have not been a very good day for the stock market but Tuesdays have.

Following the seasonalities can be a very helpful trading rule, but you also have to add in the geopolitical, and global financial risk. Despite a 265 handle (point) rally in the S&P 500 futures (ESH16:CME), it’s also important to garner a feeling for the markets when they are over extended. As I have been pointing out for the last few days, the bears covered and got long into the rally, and that is never a positive indicator. So where do we go from here? I thought we could see a down week with some type of rally on Tuesday. It’s my guess, with the futures down sharply, there will be some type of bounce, which we more than likely will sell, but in addition to that we will also be looking for the PitBulls ‘Thursdays / Friday low’ the week before the April options expiration. It’s a short expiration and my gut tells me that after a pull back the futures will try and go back up again.

Last year the PitBull warned people about increases in volatility in the month of July. That uptick led to the VIX eventually jumping all the way up to 53.29, and an 1,100 point Dow drop, on August 24. I am a bull, but I am no fool, and I do not think the extreme volatility we saw that started in July and went all the way to February is over. I know the fed is locked down and can’t hike interest rates, but that’s not going to stop the ongoing weakness in Asia and Europe. The S&P may be with world’s leading stock index, and yes it can carry the globe higher, but after a big sustained rally like we have seen over the last 7 to 8 weeks, it can’t just keep going up like it has.

A friend of mine that has been short for the last two to three weeks told me yesterday all he is doing is waiting for a pull back to get out. I am sure there are still some shorts holding out, but I think the ES would have to pull back to 1980, and even then there are still people stuck from lower prices than that. It’s not how I trade and it never will be. If you can hold the ES 100 or 150 handles against you, what is your risk reward going to be when they finally go your way? As a day trader I live by one rule; I get in, I get out and I do not fall in love with my positions. I think of it like an electronic casino; I ring the register as often as I can.

In Asia, 9 out of 11 markets closed lower (Shanghai Comp +1.45%), and In Europe, 11 out of 12 markets are trading sharply lower this morning (DAX -2.43%). Today’s economic calendar includes Charles Evans Speaking, International Trade, Gallup US ECI, Redbook, PMI Services Index, JOLTS, ISM Non-Mfg Index, and 4-Week Bill Auction.

Our View: I still think there will be some type of bounce, and if you look at the CL chart, the futures look like it double bottomed at the 35.25 level. With the ESM down so much overnight, I think it’s fair to say there are some buy stops building up, so it’s my guess we bounce at some point. Our view overall is for lower prices this week, but as for today, we lean to buying the early weakness and selling the rallies keeping in mind that Part 2) may see some buying on the close.

As always, please use protective buy and sell stops when trading futures and options.



    • In Asia 9 out of 11 markets closed lower: Shanghai Comp +1.45%, Hang Seng -1.57%, Nikkei -2.42%
    • In Europe 11 out of 12 markets are trading lower: CAC -2.31%, DAX -2.43%, FTSE -2.45% at 5:30am CT
    • Fair Value: S&P -7.98, NASDAQ -8.55, Dow -96.80
    • Total Volume: 1.3mil ESM and 4.5k SPM traded


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