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Brian's Thursday recap: Roll it and remember the Pit Bull's rule

Brian Shepard

Collective Intelligence!

The air continues to be let out of the global stimulus bubble. The dollar got pummeled overnight vs. the yen. Investors are coming to grips with the Fed’s intentions. As many have said over the last five years -- don’t fight the Fed. Investors are taking those words to heart. Uncertainty reigns and with that lower risk appetites. We have in previous reports noted the difficulty in taming a natural process that has moved into chaos in some markets. To find the zero state becomes a more elusive target. Hence, why the pendulum swings beyond the standard deviations that we have become so involved with. As the iterative process continues, the markets become more volatile. The margin clerks have sharpened their pencils to find liquidity wherever it is. This means the abject selling of precious metals and most probably energy.

The markets are desperately seeking the zero state, the reduction of volatility. It will not come until much money has been lost. Japan’s Nikkei was down more than 6 percent in overnight trading. This means there will be hedge funds blown up. We will hear later about those that did not withstand the more than 20 percent losses in their long the Nikkei/short the yen trade. It is a Texas hedge. It has blown up. Look for more margin selling to develop around 10:30 this morning. That is when funds have to be present to maintain positions.

However, the energy markets are only modestly lower. We suspect that the Middle East situation is keeping a bid in the market. Yes, there is increased demand from refineries coming back online, but one needs to ask oneself, is there demand for the products? The North Koreans have accused the South of ending talks to ease tensions. It was a ploy to satisfy China’s concerns. This is helping to keep a bid below the market. So too is the mulling of sending arms to the Syrian rebels. With the fall of Quasar, a strategic town in the rebels’ plans, the balance of power has shifted - posted by Stanton Analytics.

Stanton Analytics and MrTopStep Webinars with "Spreads and Their Relation to the Flat Price" THIS SATURDAY 11am CST - http://bit.ly/10HwSM7

Posted here by Carley Garner YESTERDAY: Our models are calling for a buy down here in the ESM 1611/12 area, but 1608 is possible so any longs should be willing to ride it a little lower if it happens.  TODAY Carley Garner (08:46:31): We are looking for a swift bounce in the dollar index. We are recommending our clients buy September futures and then buy July 81 puts. The risk is limited to about $700 and has theoretically unlimited profit potential. We think a run to 83 could be in the cards. http://twitpic.com/cwzbwu

Premarket - Sam_E (08:01) well, there ya have it. literally the last tick for nq to keep this from becoming a 5 waver was 2899. literally the last tick to keep the bull count alive - algos took it there to the tick. Sam_E (08:53) this can be an ass ripper chart pattern nq. I may be wrong but this pattern can be a get long stay long day nq - as in next stop for nq 2942 with drinking coffee in between.  (09:46) first scalper cover nq 36.  (11:06) covered for the probable retrace nq +22.  (11:09:34): plan the trade trade the plan my friend. a lot easier. mts2 (11:10)  Posted yesterday by Sam_E (14:50) I cannot emphasize how BIG NQ 2921 was to the bulls if they are right it was their gift. Sam_E (11:11) the bigger gift was literally the last possible tick for a bullish count on the globex lows.

Kathy (http://structuraltrading.com)    PREMARKET VIDEO to go w/ these charts: http://structuraltrading.adobeconnect.com/p9it77e6d69/

Harmonic rotations SPY http://screencast.com/t/lwVQc9JnxMMm , AAPL http://screencast.com/t/sipBYDfEZq , 6E http://screencast.com/t/jiJj6m6tky , NQ http://screencast.com/t/nib9qW1QSXmo , ES http://screencast.com/t/Iid3TmDHFHoG , CL http://screencast.com/t/PJrVyFov0

One of NY’s finest researchers has joined Twitter. MrTopStep gives a big thumbs up to https://twitter.com/RVchartchatter

During the Globex session 500K ESM, 125K ESU and 3k SPM traded on Globex. Wednesday’s regular trading hours (RTH’s), pit session trading range was 1609.50 – 1638.00 before settling at 1609.90, down 17.20 handles. Jobless claims checked in at 334k vs exp. 354k and May retail & food sales +0.6%; consensus +0.4%,  ex-autos +0.3%.

Today was switch day, the September contract was front month on the opening. I continue to use the June contract for pricing during the first day or two of the roll. This allows me to comfortably adjust mentally to the September contract/pricing by Monday morning. Price discovery.

The SPM opened 1 handle higher to 1610.50-1611.50 and traded an intraday low of 1608.00 before reversing and taking back most of yesterday's losses.  The above average volume during the Globex sessions as well as the violent downside moves in overseas equities had some bears trapped in at lower prices and the higher the U.S. equities went...led to more short covering - aided by the buy-side algos of course. PITBULL (11:08) POSSIBLE RISING BOTTOM ON MY DAILY OSC COULD CAUSE RALLY INTO EXPIRATION. Kathy (11:48) ESU 1614.5 tgt hit, currently breaching, but more important if can hold above it, if so, tgt is 1623.25 w/ scaling pt 1617.25... otherwise, a hold below 1614.5 implies attempt to retrace bearish Crab, ideal min tgt being appx 1608 , premkt chart: http://screencast.com/t/Iid3TmDHFHoG , current chart: http://screencast.com/t/ET7WpL6I9  By 2:20 the SPM traded an intraday high of 1633.00 while the SPU topped out at 1627.60.

An early look at the [NYSE] closing imbalance by John_Monaco (14:33) 75% sell side for the close. The SPM was trading 1634 area when the 2:45 cash imbalance showed a moderate $410M to the sell side and may have been trumped by Stanton_Analytics (14:45) *WSJ's HILSENRATH: Fed Likely to Push Back on Market Expectations of Rate Increase as new intraday high of 1639.50 traded. 1634.40 area traded on the cash close before settling at 1636.80, up 26.9 handles on the day.  Heads up...midmonth rebalancing and don't forget the PIT BULL’s rule about looking for a Thursday / Friday low the week before the expiration < posted here yesterday.

Brian Shepard is a 20-year exchange member of the CME Group.




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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.