What Happened with ES?

That is what inquiring minds want to know.  On the Wednesday reopen, you had the oddest non news related dump in ES futures that I've ever seen.  That includes the volatile times of the fall of 2008.  And the fact that the ES still can't trade much higher from those flash crash lows of 2649.75 tells you a lot.  The Asian and European markets were heavy.  You cannot blame algos for that, no matter how hard you try. 

I know there was some Huawei news that came out before the reopen, but are you really going to believe that's why someone dumped 20000 ES contracts?  Really?  No, someone really wanted to get out of his ES long position, and was willing to liquidate into an illiquid market to do so. 

One thing is becoming increasingly clear:  bull market is over.  Not everyone agrees with this, but that's where the opportunity lies.  If everyone agreed with what I thought, there would be no edge.  So if that is the foundation of every trade going forward for the next several months, then here are a few trading ideas:

1) Short SPX after good news is announced, especially after uncertainty is lifted.  This is what would have been great shorting opportunities on the day after the midterm elections and the day after the G20 deal.  The next opportunity is the FOMC meeting on December 19.  The only fly in the ointment for that event is that most traders will be viewing that as a positive catalyst, expecting a dovish Fed, and a repeat of the stock market reaction of last week when the SPX surged on Powell's dovish words.  It will be trickier this time because the expectations will be that much greater.  But I still expect a pop, but a drop will probably come quickly. 

2) Put on a 5-30s curve steepener.  The most bullish part of the yield curve is the belly, especially the 5 year portion.  The 5 year is sniffing out the end of the rate hiking cycle and is running with it, leaving the 2 year and 30 year behind.  Since the Fed reacts late to markets, there will still be some portion of a rate hike priced in 2019, but I expect that continuing equity market weakness will continue to lower those rate hike probabilities, which will benefit the 5 year the most.  But at the same time, Treasury supply continues to be massive, and there is still QT, so the 30 year should still continue to trade heavy.  So from a risk/reward basis, rather than putting on an outright long bet, a curve steepener is preferred. 

3) Don't BTFD.  That is not going to work when you have downtrends that last several weeks, not just a few days.  October was a preview of things to come.  With central banks now a net seller of bonds rather than a buyer, there just isn't the liquidity to lift stocks higher after a few days of selling. 

4) Focus on shorting during stock buyback blackout periods.  The next stock buyback blackout starts in late December, going until late January.  Ahead of what is probably going to be more gloomy earnings news, investors should be aggressive sellers in January. 

5) Don't be a contrarian.  This is related to BTFD.  When investors are nervous, they sell and keep selling.  The sentiment will be bearish.  Instinctively, many counter trend traders will view that as a sign that the trend will reverse soon.  Yes, in a bull market, that's true.  In a bear market, the selling keeps going beyond what most expect.  Stay with short trades longer than usual, and sell your long trades quicker than usual.