The S&P futures have closed higher seven out of the last nine days. As it did on the downside, the S&P will get overextended at some point. Are we there yet? It's hard to tell, but if the same price action exists today as it has all week, the ESU could be heading back to the big figure at 1700.
We do not know why, but there is a clear absence of hedge fund, bank and proprietary trading desk trading right now. Sure the option markets are still trading, but the rest of the crowd seems to be going slow since the Labor Day holiday.
It could have something to do with trying to hold on to gains that many hedge funds saw earlier in the year. In fact, there's no doubt about it. At 6:00am CT the S&P has gone from up .75 handles to down .25 handles, the range is a measly 4.25 handles from 1684 to 1679.75 with 110,000 contracts traded. You can almost hear crickets.
Our view is to sell the early rally and buy weakness. True, we often recommend that (and get proven right most of the time). But the trick is in the timing. This isn't a set-it-and-forget-it trade. The rally doesn't happen on a fixed schedule and weakness is in the eye of the beholder. The key for individual traders is to go in with targets and a definite exit strategy.
As always, use stops and keep an eye on the 10-handle rule. Don't forget to catch MrTopStep on The Closing Print video found under the OptionsTV page (top bar). We report directly from the SPX pits, wrapping up the day and positioning for trade tomorrow.