S&P 500 END OF THE MONTH REBALANCE

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With the S&P futures up 5 in a row going into last Friday's trade, it’s now looking like the first down day out of the last 6 was set up to add fuel to the fire yesterday. After a gap higher, the ESM went into autopilot on the upside, backed by a fresh wave of buying called end-of-month rebalancing which helped push the S&P futures back to within 2 handles of the all-time contract high.

Friday’s Closing Print video
At the end of last Friday's Closing Print video we said that there was just too much anticipation after last Thursday's 1588 high that Friday would be the day the S&P futures trade 1600 and that the last two days of April the S&P would see some upside rebalancing, and that is exactly what happened. Please check the video: https://mr-topstep.com/index.php/multimedia/latest-you-tube-videos/danny-riley-closing-print/video/latest/closing-print-4-26-2013

S&P lower high
If you are a chartist or a technician, yesterday’s lower high at 1592 could be perceived as a bearish signal. The ESM rallies 61 handles in 7 days and pukes at the retest high. That has to be bearish, right? In most cases the answer to that question would be yes, but these are not normal times, nor are these normal markets. With the Fed QE3+ and the world’s central banks printing money at an unprecedented pace, it’s hard for us to believe yesterday’s lower higher will hold for very long.

Little fish
There is a sense by many market participants that S&P 1600 could be it. That at or just above that price the S&P could top out, make a high. In the world of algorithmic and program trading the robots don't care about direction, they care about liquidity, they care about stop placement and most of all they care about you, the retail trader. Yes, when our desk buys 10,000 or 15,000 ES, we know the algos cleaned up on the order. 90% of the time after the order is executed the ES will retrace in the other direction. But when it’s thin and the big orders are not trading, it’s the “little fish” that feed the machines. That is why we recommend being more patient and trading less.

The Walkaway Trade
One of the MrTopStep.com trading rules is called the Walkaway Trade. Instead of explaining it, here's the link to the MrTopStep Trading Rules 101 for you to look it up. This is a trading rule we learned from the Pit Bull. It generally works best on the last trading day of the quarter, but we have also seen it happen on the monthlies. 

Trade or fade
Let’s face it. Trading is harder to do than it ever has been. Squeezing a few bucks out of the S&P is just not as easy as it used to be. Trader have lowered their expectations to fit reality. That means learning as much as you can. There has never been a time when futures and options trading have not been evolving. The exchanges and regulators can't keep up, so how can we? I’ll tell you how. You have to want it, you have to work for it and you have to dedicate yourself to the effort. And most of all, don't let your ego take over your wallet. That means get in and get out -- don't fall in love with your position.

Our view: Whether it’s today or tomorrow, S&P 1600 is on tap. There are just too many buy stops for the algos to overlook. That said, today and the rest of the week are packed with all sorts of economic releases, with Friday's jobs numbers topping the list. Our view is twofold -- sell the early rally and buy weakness or just wait and buy weakness. Initially the buy stops go up to 1596 and start again above 1599.50 up to 1603-1604. As always, keep an eye on the 10-handle rule and please use stops.

  • It’s 7:15 a.m. and the ESM is trading 1586.25, down 2 handles; crude is down 61 cents at 93.89; and the euro is down 21 pips at 1.3080.
  • In Asia, 9 out of 11 markets closed higher (Shanghai Comp -0.97%, Hang Seng +0.69%, Nikkei -0.17%).
  • In Europe, 7 out of 12 markets are trading higher (CAC -0.25%, DAX +0.44%).
  • Today’s headline: “S&P Futures Little Changed Ahead of Data”
  • Total volume: (LOW) 1.23mil ESM and 4.5k SPM traded
  • Economic calendar: FOMC 2-day meeting begins, employment cost index, Redbook, S&P Case Shiller index, Chicago PMI, consumer confidence, farm prices
  • Fair value: S&P -2.26, NASDAQ -2.50

MrTopStep Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-4-29-2013

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.
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DISCLAIMER: The information and data in the above report were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities.

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