Equity Futures Market Analysis 21 May

Market Overview and Sentiment News

Equity futures dipped approximately 0.6% this morning as investors reacted to fiscal uncertainty over President Trump’s tax-cut bill standoff and climbing Treasury yields. Tech contracts led the losses while financials outperformed on a steeper yield curve, and energy futures were mixed after government inventory data tempered earlier gains.

• Fiscal Concerns: Republicans’ late-night House hearing on the tax bill has unsettled markets, pushing the 10‑year yield to 4.53% and the 30‑year to 5.00%.
• Yield Dynamics: U.S. 2s/10s curve steepened, benefiting bank futures and net-interest-margin outlooks.
• Tech Pressure: Nasdaq futures fell around 0.6% amid profit-taking in high-multiple tech names as yields rose.
• Energy Reaction: EIA data showed a build in crude inventories, offsetting earlier draw-related rallies in energy futures.
• Bullish Signals: Morgan Stanley’s upgrade of U.S. equities to overweight suggests broader support for stocks and Treasuries despite dollar weakness.
• Market Pause: Analysts note a pause in the recent rally, with traders taking profits ahead of key events like tomorrow’s Fed minutes and next Friday’s Core PCE report.
• Dollar Dynamics: The U.S. dollar slipped on fiscal risks, reinforcing volatility in equity futures.

Technical Analysis Insight

Prices taken from 06:20 this morning

• ES (E-mini S&P 500): Persistent downtrend below VWAP and 20/50 EMAs, expanding lower Bollinger Band signals strong selling momentum; MACD histogram widening negative, RSI ~28 oversold — relief bounce to VWAP (~5926) possible but bias remains bearish.
• NQ (E-mini NASDAQ 100): Trading below VWAP and mid‑BB with accelerating slope; MACD histogram deepening negative, RSI ~25 deeply oversold — watch LVN at 21400 for potential bounce, but strong downside momentum persists.
• YM (E-mini Dow): Under VWAP and key EMAs, hugging lower BB expansion; MACD negative and widening, RSI ~30 moderately oversold — favor short entries on rallies toward VWAP (~42580).
• RTY (E-mini Russell 2000): Aggressive decline under VWAP and mid‑BB, lower BB expanding; MACD histogram expanding, RSI ~20 extremely oversold — potential bounce zone at LVN 2070 but trend remains firmly bearish.

Today’s Technical Take: All major futures exhibit broad intraday downtrends under key moving averages with oversold readings and increasing volatility. Focus on shorting relief rallies to VWAP or middle Bollinger Band, while monitoring LVN support levels for temporary bounces. Maintain disciplined risk management, especially ahead of upcoming data releases.

Foundational Analysis

• Monetary Policy: Fed likely on hold; PCE will guide next steps—Bull: evidence of cooling inflation; Bear: services inflation remains stubborn.
• Labor Market: Job growth slowing but still strong—Bull: soft landing narrative; Bear: resilience delays rate cuts.
• Yield Dynamics: 2s/10s curve steepened slightly—Bull: improved financial conditions; Bear: elevated long-term rates weigh on valuations.
• Corporate Guidance: Q2 outlook cautious—Bull: margin expansion beats; Bear: conservatism drags multiples.
• Geopolitical Factors: Middle East tensions underpin oil; China reopening supports cyclicals.

Overall Bias: A nuanced stance—selective longs in cyclicals and defensive sectors, while maintaining short bias in overextended tech on rallies.

Economic and Trading Events This Week

• May 21 — EIA Crude Oil Stocks Change (10:30 AM ET): Expect volatility in energy futures; a larger-than-forecast drawdown would boost energy names and lend risk-on support to equity futures, while a build could dampen momentum.
• May 21 — EIA Gasoline Stocks Change (10:30 AM ET): Drawdowns can reinforce bullish oil flows; builds may add downward pressure on crude and related equities.
• May 22 — Initial Jobless Claims (8:30 AM ET): A surprise rise eases Fed rate hike concerns and can lift futures; a drop may tighten labor markets and trigger risk-off selling.
• May 22 — Flash PMIs (9:45 AM ET): Composite, Manufacturing, and Services PMI prints will gauge economic momentum. Above-consensus readings can spark relief rallies; misses could trigger broad sell-offs.
• May 22 — Existing Home Sales (10:00 AM ET): Strength in housing underpins consumer confidence—beats support equities, while weaker sales weigh on cyclical sectors.
• May 23 — New Home Sales (10:00 AM ET): Rising sales signal ongoing consumer demand and can buoy futures; declines may stoke concerns about consumer pullback.

Trader Takeaway: Equity futures traders should anticipate heightened volatility around these releases, especially between 8:30–11:00 AM ET. Plan to reduce position sizes and widen stops near key prints, or consider fade strategies into unexpected moves. Watch correlated energy flows on oil data and use PMI/Economic surprises to guide short‑term directional trades.

Strategy for Scalpers

Order Flow & Volume Profile Tactics

Use a Virtual Private Server: with QuantVPS, you can execute trades with a 1ms latency. Sign up here!

• VWAP Fade Entries: Short rallies back to VWAP after extended moves; confirm with aggressive sell delta on 1‑minute bars.
• Volume Spike Reversals: Identify sudden volume surges outside the value area and fade the move when delta imbalance reverses.
• Trendbook Levels: Use prior day high/low and overnight HVNs as dynamic support/resistance for quick scalp entries.
• Time-of-Day Brackets: Focus on opening (9:30–10:00 ET) and lunch break (12:00–12:30 ET) windows for predictable volatility.
• Tight Stop Management: Set stops at 0.2× ATR on 1‑minute chart to protect against sudden reversals.
• Pre‑Data Light Positions: Flatten or reduce size 10 minutes before major data (PCE, GDP) to avoid whipsaws.

Summary

Given the risk-off tone following Moody’s downgrade and soft retail data, U.S. equity futures remain in intraday downtrends under VWAP and key EMAs with oversold readings across major contracts. The overall bias is bearish into relief rallies; consider short scalps on moves back to VWAP or the middle Bollinger Band, targeting LVN support levels (ES 5900, NQ 21400, YM 42430, RTY 2070). Watch for potential oversold bounces at these LVNs but manage risk closely, reducing size and widening stops ahead of S&P Flash PMIs and Initial Jobless Claims.

Rally, Sell-Off, or Neutral Justifications

• Rally Drivers: Cooler-than-expected inflation readings, dovish Fed commentary, strong tech earnings surprises, and renewed AI optimism.
• Sell-Off Triggers: Hawkish Fed signals, upside inflation surprises, weaker retail and housing data, and geopolitical flare-ups.
• Neutral Factors: Mixed macro data, consolidation after strong moves, and market awaiting next catalysts post-PCE.