Beware Of The S&P’s Doji City

In our Saturday post,  Heads Up! Friday’s Rare S&P Shooting Star Candlestick,  we pointed out the S&P500 had formed a rate shooting star Doji candlestick on Friday with price action that had been observed only once since 2010, last Halloween day.

Run don’t walk to view the post, here.

Halloween 2018

Take a look at last Halloween’s S&P shooting star.  The index consolidated the next few days then gapped up with a nice long green candle, which probably sucked in many traders into long positions.  The next day the S&P formed a long-legged Doji before rolling over to eventually crash to the December 2018 low,  forcing the market socialists to call, no scream for a Fed rescue.

Upshot

The key now is to watch the price action next week.

A break on Monday of 2960 (see below for key support levels) or the formation of more Doji candlesticks will further reduce the market fog and indicate the market is probably headed for some trouble.  — GMM, Oct 12th

Since Saturday’s post, the S&P500 has formed two daily Doji candlesticks during the past three trading days, including today.  These are signs of indecision by traders.

Our sense is that many traders are expecting a breakout to new highs and were probably sucked into long positions with Tuesday’s big move.

Doji City And Price Reversals

Our observation of the price action over the past few years is that when Dojis begin to become ubitiquous it’s a warning, signal, and confirmation of a potential major price reversal.  It’s not a guarantee but after Friday’s shooting star candle followed by the price action similar to last Halloween,  coupled with the head & shoulders formation, we are on full alert.

Key Levels

To the upside is Tuesday’s intraday high of 3003.28  and 3021.99, which would negate the head & shoulders pattern.  A close above 2995.68 (Tuesday’s close) and then 3007.39 would be positive.

To the downside, is the 20-day moving average at 2958, which coincides with some key Fibo levels is a must hold.  That would be a sell.

Upshot

Short-term trading is very difficult and, in our opinion,  has turned into a mug’s game since the rise of the trading ‘bots and algos.  We have learned the hard way with some very expensive lessons.   Thus, we don’t pay much attention to the daily noise anymore unless we believe a big move may be developing.

Market Manipulation. 

Moreover, the powers that be have tried their very best to keep the market moving higher.  Beat the Tweets?   Come on, man!

Unless, of course, you know they’re coming.

Read the following, then feel free to throw up.  Make sure to click on the link and read the entire piece.

In the last 10 minutes of trading at the Chicago Mercantile Exchange on Friday, September 13, someone got very lucky. That’s when he or she, or a group of people, sold short 120,000 “S&P e-minis”—electronically traded futures contracts linked to the Standard & Poor’s 500 stock index—when the index was trading around 3010. The time was 3:50 p.m. in New York; it was nearing midnight in Tehran. A few hours later, drones attacked a large swath of Saudi Arabia’s oil infrastructure, choking off production in the country and sending oil prices soaring. By the time the CME next opened, for pretrading on Sunday night, the S&P index had fallen 30 points, giving that very fortunate trader, or traders, a quick $180 million profit.

It was not an isolated occurrence. Three days earlier, in the last 10 minutes of trading, someone bought 82,000 S&P e-minis when the index was trading at 2969. That was nearly 4 a.m. on September 11 in Beijing, where a few hours later, the Chinese government announced that it would lift tariffs on a range of American-made products. As has been the typical reaction in the U.S. stock markets as the trade war with China chugs on without any perceptible logic, when the news about a potential resolution of it seems positive, stock markets go up, and when the news about the trade war appears negative, they go down.

The news was viewed positively. The S&P index moved swiftly on September 11 to 2996, up nearly 30 points. That same day, President Donald Trump said he would postpone tariffs on some Chinese goods, and the S&P index moved to 3016, or up 47 points since the fortunate person bought the 82,000 e-minis just before the market closed on September 10. Since a one-point movement, up or down, in an e-mini contract is worth $50, a 47-point movement up in a day was worth $2,350 per contract. If you were the lucky one who bought the 82,000 e-mini contracts, well, then you were sitting on a one-day profit of roughly $190 million.

…But these wins were peanuts compared to the money made by a trader, or group of traders, who bought 420,000 September e-minis in the last 30 minutes of trading on June 28. That was some 40% of the day’s trading volume in September e-minis—making it a trade that could not easily be ignored. By then, President Trump was already in Osaka, Japan—14 hours ahead of Chicago—and on his way to a roughly hour-long meeting with China’s President Xi Jinping as part of the G20 summit. On Saturday in Osaka, after the market had closed in Chicago, Trump emerged from his meeting with Xi and announced that the intermittent trade talks were “back on track.” The following week was a good one in the stock market, thanks to the Trump announcement. On Thursday, June 27, the S&P 500 index stood at about 2915; a week or so later, it was just below 3000, a gain of 84 points, or $4,200 per e-mini contract. Whoever bought the 420,000 e-minis on June 28 had made a handsome profit of nearly $1.8 billion.

Traders in the Chicago pits have been watching these kinds of wagers with an increasing mixture of shock and awe since the start of the Trump presidency. They are used to rapid fluctuations in the S&P 500 index; volatility is common, of course. But the precision and timing of these trades, and the vast amount of money being made as a result of them, make the traders wonder if all this is on the level. Are the people behind these trades incredibly lucky, or do they have access to information that other people don’t have about, say, Trump’s or Beijing’s latest thinking on the trade war or any other of a number of ways that Trump is able to move the markets through his tweeting or slips of the tongue? Essentially, do they have inside information?

..given how fishy and coincidental the trading in e-minis seems to be these days, the SEC or CFTC would be doing a great service (and their job) for the American people by investigating who is behind these lucrative trades, and what they knew before they placed them. At the moment, what we’re getting from them is an indifferent shrug.

Federal regulators might start here: In the last 10 minutes of trading on Friday, August 23, as the markets were roiling in the face of more bad trade news, someone bought 386,000 September e-minis. Three days later, Trump lied about getting a call from China to restart the trade talks, and the S&P 500 index shot up nearly 80 points. The potential profit on the trade was more than $1.5 billion.  — Vanity Fair, Oct 16th

The fact we have to even think about this makes us wanna hurl.

As always, we reserve the right to be wrong.