If there is such a thing as easy money in the trading world, it comes to those who go against a dramatic closing high or low.  Thus, if the broad averages end the day at or near the top of a strong rally, you can bet that index futures will sell off moderately in the hour or so after the bell. Conversely, if stocks get slaughtered as they did on Wednesday, their initial move after the bell, via E-Mini index futures, will be up. That is what is occurring in this vehicle at this moment, and it could have been worth as much as $260 per contract so far to anyone who went long at the bell. The reason this trade works so well is that the pros who control these markets — the night shift, as it were — are setting themselves up for a resumption of the dominant trend the next day. This strategy perfectly suits those on the other side of the trade, since bears will want to take profits on short positions on days when sellers have prevailed, and bulls will want to do likewise when shares have rallied strongly.  The force of the buying and selling will be muted in comparison to that which occurs during regular hours, but it will usually be strong enough to provide liquid, orderly markets, especially in the first hour or so after the close.

Easy money aside, what does yesterday’s selloff portend? My guess is that the 2003.75 downside target first broached here a couple of days ago will be achieved.  If so, it would mean the Dow has a further 300 points to fall before the bear cycle begun from 2122.00 on June 22 has run its course. If a pattern that has become entrenched during the last two months or so continues, the best opportunity to get short will come at around 4 a.m. Eastern, when “no one” is around. As night owls will have noticed, index futures have been making their daily highs or lows in the dead of night, since that is when the futures are most easily manipulated. Off-session trader looking to leverage this insight should take note of a so-far unused Hidden Pivot at 2022.50 (see inset), since it could generate a tradable reversal either tonight or, more likely, shortly after the opening bell.