The Rooster Call: Pullback Potential in Equity Index Futures

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

We talked about a pull back potential in equity index futures based on the charts and lo and behold, overnight action delivers exactly what the charts suggested we could see. It’s not rocket science if you know what you are looking for as a short-term trader.

On Monday, I suggested we buy back our short puts in a couple of non-directional trades. We had captured all but a tiny amount of the credit. If today’s price drop in equity index futures continues…our short calls will fall back in line. I am talking of “non-directional” option trading, which can be a real nail biter at times. One has to have faith in so many aspects of life…including these type trades.

After banking 100% on CAT options, any runners showed a 284% at the end of yesterday’s close. Nice return on investment for a trade we entered just last week. With Dow lower pre-market; CAT will open lower. Chances are you can liquidate the final runners with a nice gain. The short-term trader converts to cash quickly holding runners if desired for further price appreciation.

Let’s take a look at the news….

The World Bank cut global growth forecast to 2.8% from 3.2%. Copper falls on the news. I hope you see the pattern…every year as the calendar year begins we hear extremely positive news from governments, central banks, Wall Street analysts, etc. After May the truth starts asserting itself. I am telling you…every single year. Thus, one should always be long equities / equity index futures in January in some form or fashion.

Iraq’s army gave up the second largest city in Iraq to an al Qaeda related group. Crude is not reacting…yet.

Bloomberg relates Brent crude is higher due to China feverishly filling their own strategic oil reserve to the tune of 600,000 barrels a day. If you are like me wondering why crude remains elevated, this is your answer. And if Brent is higher, USA crude follows suit.

House Majority Leader Cantor ousted in favor of a Tea Party candidate. No trading ramifications to speak of…but uncertainty is not welcomed on Wall Street. Cantor out-spent his opponent 26-1 (Reuters).

China increases spending to spur their economy. The finance ministry said fiscal spending had surged nearly 25% in May from a year earlier (Reuters).

Today’s Reports and FED Activity

7:00 MBA Mortgage Applications
10:00 Quarterly Services Report
10:30 EIA Petroleum Inventories
1:00 PM Results of $21B, 10-Year Bond Auction
2:00 PM Treasury Budget

Overnight/Pre-Market

  • Equity index futures we follow are lower.
  • Euro threatens to replace Yen as the carry-trade currency of choice. Your signal is a close below last Thursday’s low.
  • Yen is strong today.
  • Aussie dollar quiet.
  • US dollar lower.
  • Bonds are quiet incrementally higher.
  • Gold incrementally higher. We are in “whack” territory, whereby a sudden drop is possible as gold traders remember a slowing economy equals low interest rates and low inflation. Be careful. We have plans for gold…but not yet.
  • Grains are quiet in front of today’s USDA report issued at 12:00PM ET. Soybeans will likely make a move for day traders.
  • Cocoa side ways action continues.
  • Cotton pops.
  • Coffee registers an incremental up move.
  • Sugar incrementally lower.

Day Trader Bench Marks

Intraday ES Floor Pivots – Using 24 hour electronic market hours 1800-1715 ET.

R3: 1963.25
R2: 1957.50
R1: 1954.50

Main floor pivot: 1948.75

S1: 1940.50
S2: 1940
S3: 1937

Intraday Euro Floor Pivot – Using 24 hour electronic market hours 1800-1700 ET.

R3: 1.3656
R2: 1.3629
R1: 1.3588

Main floor pivot: 1.3561

S1: 1.3520
S2: 1.3493
S3: 1.3452

Think About This!

A rash of profit-taking is possible in stocks/equity index futures. Risk aversion is on everyone’s mind judging from our bench mark discussed every night in the teaching videos. If we see profit-taking then bonds are likely to resume their up move. You can day trade bond or the 10-year note.

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.