“Bluto Rallies” Punctuate the Market

In yesterday’s piece, we noted the “now-familiar pattern of buying into weakness in pre-market US index futures in anticipation of an ensuing opening rally,” but a catchy term to describe it eluded me.  Thanks to my well-disclosed love of classic comedies, the term came to me this morning after yet another failed pre-market futures bounce.  With apologies to the late John Belushi, I came up with the term “Bluto Rally”.

I’d like to think that fans of the movie Animal House can easily conjure the scene that I’m thinking of.  When things are looking irreparably bleak at the Delta House, “Bluto” Blutarsky, played by Belushi, offers an inspirational speech to his fraternity brethren and charges into action.  Unfortunately, no one follows him.  (I’m not doing justice to the comedy; the clip can be found here.)

This sounds a bit like the type of activity that we see on all too many mornings recently.  Some intrepid futures traders seem to be attempting to get US stock futures moving higher while local traders are still sleeping.  We had seen these rallies begin around 6-7 AM ET in recent months, but they now seem to begin around 3 AM ET instead.  While this could simply be a group of Europeans starting their day with some bullish sentiment, or Asian investors with a sunny disposition, I take a more cynical view. 

ES Futures, 3-Days, 5-Minute Candles with Vertical Lines at 2AM CT and 8AM CT [Futures chart time is expressed by Chicago hours]

Source: Interactive Brokers

As the current bull market strengthened, it was logical to think that if stocks were going to rally during the regular session, then why not get a jump on the activity beforehand.  In October 2024 we mused,

I’ve begun to wonder how many of you hit “buy ES” or “buy NQ” before brushing your teeth.  We had the usual pattern this morning: futures with a modest move (higher today) when many US-based traders were waking up followed by a lift into the official open.

Traders are continually searching for consistent patterns, and this was no exception.  If buyers noticed the market’s propensity to rally around 7 AM ET last year, then why wouldn’t others seek to buy it beforehand, say at 6 AM?  If 6 AM worked reasonably well, why not try 5 AM?  And so on….

The problem with trading strictly off patterns is that they don’t always repeat as planned.  They certainly haven’t done so this week.  Concerns about the sustainability of the AI-driven rally have resurfaced on several mornings – certainly over the past four.  The lesson here is that motivated fundamental investors can disrupt the most consistent trading patterns.  If large holders want to sell major stocks like Broadcom (AVGO) and Oracle (ORCL), as they have been doing since they reported last week, and their concerns spill over into other related shares, there is little that dedicated futures buyers can do to dissuade them.

As with any pattern, this too can and likely will get played out.  The “Bluto rallies” seem more likely to succeed as volumes ebb over the holiday period.  Presumably the large institutional investors will want to finish squaring their books before Christmas, and maybe even as soon as this Friday, opening the playing field for the “Santa Claus rally” amidst concerns about “shorting a dull tape”.  But until then, the “tape” is anything but dull.  It appears that the launchpad for Santa’s sleigh will be a bit lower than many anticipated.

And by the way, we saw a “Bluto Rally” in bitcoin today too:

Bitcoin, 2-Days, 2-Minute Candles

Source: Interactive Brokers