Monday, September 4, 2017

Sunday School

Well. Not that kind. In sort of a rarity on this site, I thought I would document the overnight Sunday session of the ES E-Mini S&P500 Futures to see what they have to teach us. The cash market on Friday could barely move 11 points, but like an invisible bear in winter woods, the futures have this funny way of making big kills - yet not leaving any tracks in the snow (in the cash market, that is).

At some point, the seasoned trader must ask, "do the even futures matter?" Well, certainly they mattered to someone on election night because the futures were first down 100 points ($5,000 per contract), and then, after the halt, they were up 100 points, nearly as fast. But, how about now?

Certainly someone sold something in the overnight this Sunday night. The futures were down - at the lows - about 13 points on the supposed news of North Korea's A-bomb test. Hmm. Not even as much as they were down when a missile flew over Japan. A chart is below.

ES E-Mini S&P500 Futures - Half Hour

However, as the chart shows, anyone who "sold the news" and didn't wait for some kind of pull back would be under water (as the term goes). While those who took a chance on the X wave are in small profits.

There are a couple of interesting things to me. The first is just how quickly the market makers are currently able to stop a decline. One down candle per A-Bomb, I guess. Then, secondly - much as I showed on the Russell 2000 futures, there is a perfect diagonal that has formed from those lows. There are five waves up, the fifth is shorter than the third, the third is shorter than the first, the fourth is shorter than the second, the fourth overlaps the first, and they are all three-wave sequences.

Perhaps, that is an 'a' wave up. That remains to be seen by exceeding that high. In fact, I was very interested to see if that high was exceeded by the end of the session, but it wasn't, so possibly a 'b' wave down is forming.

And that is all very interesting, but the real question is, "what, if anything, does it mean for the cash market?". Why are so many (low-volume) trading hours being expended on this price movement, and the overnight still has another session to go from Monday night into Tuesday morning. Finally, we'd like to note that because the futures do trade 'nearly' around-the-clock, when they do form a gap, the gaps tend to fill quite quickly - usually more quickly than in  the cash market.

The reason I raise this topic is I have been questioning for many, many months whether to even bother to count cash anymore. Cash is a 'calculated, non-tradeable average', except in ETF form where it is clouded by the effects of dividends included in the SPY for example. And, if the futures can go down 100 points on election eve, and then right back up on election day, while cash does (gulp!), um, nothing, then of what relevance is the cash market?!

I think it is true that cash puts a damper on the futures market. It is harder to rig the cash market. And, ultimately, it seems the cash Elliott Wave count must work out. But, yet, it may turn out the futures market has some benefits for wave counters that the cash market may not. For example, what would the Elliott Wave count be in cash if the futures gap, above, closed immediately? What would the Elliott Wave count be in cash if futures prices continued to make lower lows? Remember, nothing since Friday afternoon is even included in the cash Elliott Wave count, yet.

As far as I can tell, this is an undeveloped topic - as far as typical day-traders go. Yet, inquiring minds might like to look into different scenarios to more fully develop Elliott Wave theory. One thing we know for sure, is that while Ralph Nelson Elliott did have overseas markets and gaps to contend with, he did not have to wrestle with this topic of the futures. Lucky him?

Have a very good continuation of your weekend, and your Labor Day, if you are in the U.S.
TraderJoe

1 comment:

  1. Anyone that sold the news when NK flew a missle over Japan are under water as well. Carl Icahn made a billion dollars in the futures market buying the initial sell-off on election night.

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