At 3:59pm on Friday, someone unloaded several thousand ES contracts. They did this just when they knew there was enough liquidity to allow them to do it and they did it so late in the day that it barely impacted the cash market. The ES dropped from 1408.00 to 1404.00 in less than a minute and then closed that one minute candle at 1404.50. During this same time, $SPX dropped from 1409 to 1407. Had this selling been done two to three minutes earlier, then its full impact would have been felt by the markets.
High volumes in the one minute time frame were running at 7k to 8k contracts, and there weren’t that many candles with that much volume during Friday’s regular session. Volume on the 3:59pm candle was 13291 contracts making it the highest volume candle of the day.
So what does this mean? At face value it just means that some big player or players wanted to lock in profits before the long weekend, but it also means that the Pro’s sold the close and that is always a concern going forward. I’d like to think that the Pro’s are concerned with the way the market has been behaving of late, didn’t really buy into Bernanke’s double speak, and are expecting a pull back at any time, but that would just be too convenient, wouldn’t it? It’s a riddle and the answer to this riddle probably won’t be known for several days.
One minute chart of ES showing the huge candle, which shouldn’t be taken lightly, IMHO, of course.
On August 9th, with $SPX at 1402, I warned of a pull back in the markets that should come about within 3-10 days. So here we are 16 trading days & 22 calendar days later with $SPX at 1406 and no pull back and no real signs of either covert or overt distribution. The market isn’t going to grind along for much longer without giving us all an indication about which way it wants to go. I’m not a bear, but I just can’t buy at current levels as the rally seems to be exhausted and $NYSI says that the market strength is now being replaced by market weakness. This is not a recipe for success.
Here is one other chart that I am following: $VIX:$VXV. The keys are the two moving averages. In the past three years, those two MA’s had not dropped much below the H/L line at .85 until March of this year. Now they have dropped below .85 again. Back in late March, the red, 34MA dropped just below .82 and the market topped out a few sessions later. That 34MA is dropping at about one point per week so if the market does indeed rally on next week, then the 34MA should close out the week below .82. If this does in fact happen and the market doesn’t react negatively within a few days, then I’m totally lost and out of bullets.
Simple daily chart of $SPX with important levels either to rise above or drop below in the next few sessions. If $SPX wants to go higher, then it should be able to close above 1410.08 on Tuesday and surely by the end of Wednesday’s session. On the other hand, if $SPX wants to go lower, then it should close below 1397.01 on Tuesday and surely by Wednesday’s close. Pretty simple and straight forward.
I’ve now moved into day trading the ES while I wait to see what the markets are going to do. I don’t trade the overnight session so what’s happening now, about 8:30pm ET Sunday evening with the ES off a little more than 6pts is of little concern to me. I’m just scalping, picking up 3-4 ticks per trade and then I’m out. On Friday I was in the market for a total of 29 minutes on two trades. Yes, I missed all those big moves but that is not the point of the strategy I employ. I don’t care what the market does after I get out. I just take my profits and wait for the next set up.
And speaking of the sell-off in the futures right now, well, I’ve seen this too many times before. Usually when you see the futures sell off like they’re doing now it just means that the big players are driving the market down so they can get in on the cheap for the expected rally to come. Could be different this time. Just have to wait and see.
Be careful and GL in the week ahead.