S&P 500 Futures: Event Driven Trading French Election

 | Apr 26, 2017 12:50AM ET

The S&P 500 futures (ESM17:CME) and the Dow Jones futures (YMM17:CBT) closed up over +1.10% Monday off of the French election results. The Nasdaq 100 futures (NQM17:CME) traded at a new high, or up +1.2%, to 5512.75. The three futures saw their largest gains since March 1st.

Everything was moving… The French CAC was up over 4.4%, and closed up +4.1%, the largest one day rally in five years. The German DAX closed up 3%, hitting a new high, and the British FTSE closed up 1.37%. The VIX that traded up to 1596 on April 13 (its highest level in five months) fell 26% to 10.84, its largest one day drop since 2011. The Euro that was up +2.3% ended the day up +1.3% to $1.0868, its largest gain since last June, and gold lost some of its shine, losing -0.90% to $1,275.80. Crude oil slid on oversupply concerns, falling to its lowest level in four weeks, off -8.5% from its one month high hit on April 11.

Yesterday’s trade was exactly how we called it in the ‘Our View’ section of the Opening Print; sell the early rallies and buy weakness. The ESM17 traded up to 2376.75 on Globex and started selling off before the 8:30 futures open. The futures traded 2371.40 on the open and then started moving back down. After trading up and down through the VWAP, the ES made an early low at 2367.25, rallied back up to the 2372.00 area, and then got hit by a few small sell programs that pushed the ES down to its daily low at 2365.75. After the low, the ESM17 rallied back to 2374.00, and settled at 2370.25 on the 3:15 futures close.

Despite the big move up, the day’s overall trade saw 1.5 million ES contracts traded, with 360,000 of that coming from the Globex pre-8:30 futures open. In terms of the S&P’s overall tone, it felt like all the hedgers were getting squeezed out.

h2 TraderDave And Event Trading/h2

Trader Dave told me over a year ago that it was too hard to day trade, and that what he does is wait for the ‘big moves’. At the time I thought he was a tad crazy, but after looking at the ES over the last 10 months, I am starting to understand what he is saying. While I am not telling day traders to give up their jobs, I do believe that the charts below are an eye opener for traders that want to trade the ‘big moves’.

When you look at the overall price action over the last seven or eight years, it’s all about what I call the ‘drops and the pops’. That could mean a 20 handle, or even a 100 handle drop, but the net result has always been that the S&P futures go down for several days, and then take back half the losses on the first up day as they start to retrace any selling.

This brings me to the point, what’s a better way to make money? Day trade, try and get in and get out, make a few bucks (if you can) and call it a day, or wait for those times that there is a ‘big event’ and jump in / try and profit from the event or response? Or do a combination of both…day trade the ES, and when the big events come along, use wider parameters and hold positions longer?

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According to TraderDave there are only a few times a year when big news will move the S&P sharply. He said ‘if you can catch three or four of these moves you can make your whole year. It’s better than the day trader grind, and it keeps you from burning out too as fast.’ At first I disagreed, but after seeing TraderDave sell into the highs the night of the Brexit vote, and how patient he was leading up to the event, he had a plan and he executed it. I am not sure all day traders will see it that way, but it’s hard to disagree with the idea, it’s just a matter of executing it.

Another approach is what my friends Hayes said to me one day before the markets sold off, you can buy the S&P as a day trade, but own some puts also. This way would be to day trade the ES, and set up an options strategy.

S&P futures dropped from the 2119.50 Brexit high to limit down at 1999.00 then to 1981.50 two sessions later before rallying 186 handles in 12 sessions.

Event Driven Sell Offs: Election night November 8, 2016 the ES dropped from 2135.75 to limit down to 2028.50 and rebounded to close higher at 2160.50 in the same session. Since then has rallied 372.50 handles or 18.3%.

Health Care Event Driven Sell Off.Rallied to 2378.75 on the open then dropped down to 2338.00 on regular session then to 2332.25 in globex

h2 While You Were Sleeping/h2