You can read and believe anything you like. If you read the Wall Street Journal they will say weakness in Europe pulled the US stock market lower but we don’t think that was the case. The real deal is after the S&P 500 futures (ESH15:CME) sold off on Wednesday it opened higher in Globex and was up 4.5 points in the first few minutes, with only 3,000 contracts traded. Throughout the night and after the 8:30 open the S&P futures continued to rally all the way up to 2067.25, up 15 handles from Wednesday’s 2052.40 close. Clearly the S&P used up all its buying power early in the session.
By 8:45 AM CT the S&P started reversing and traded all the way down to 2038.75 around 12:30 CT, a 28-handle selloff. Once the algorithmic trading programs chased the buy stops they started feeling out the downside stops. The Dow Jones futures (YMH15:CBT) closed 29 points lower, down 1.2% on the week. The Nasdaq futures (NQH15:CME) closed down 18.5 points. Despite the late run-up and the $2 billion buy, all the indices fell hard going into the close. The E-mini traded up to 2055.75 but sold off 10 handles down to 2045.25 and settled at 2046.25, down 6.25 handles. The S&P (^GSPC:SNP) closed out the week down 1.5% and the Nasdaq ended down 1.7% for the week.
In Asia 8 of 12 markets closed lower and in Europe 9 of 12 markets are trading lower this morning. This week’s economic calendar includes some key economic reports: the FOMC minutes, the International Trader numbers and Friday’s jobs report. In all there are 18 economic releases and 10 T-bill or T-bond auctions or announcements. Today’s economic calendar includes the Motor Vehicle Sales, Gallup US Consumer Spending, San Francisco Fed President John Williams in Boston on a panel discussing housing, unemployment and monetary policy, 4-week, 3- and 6-month T-bill auctions, TD Ameritrade IMX, and earnings from Peak Resorts (NASDAQ: SKIS) and Ennis (NYSE: EBF).
Back to work, everybody
Our view: Did you know the ESH has closed down 3 out of the last 5 sessions? One of the current problems with the stock market right now is a big lack of liquidity. Most traders started cutting back before Christmas and will return this week. Right now the overall price action is one of failed rallies, but I do think that may change this week. Our view is to buy the early weakness. This doesn’t mean the selloff is over, but it’s close.
As always, please use protective buy and sell stops when trading futures and options.
Video: S&P Rough Start
https://www.youtube.com/watch?v=IE93IrSJIss
- In Asia 8 of 12 markets closed lower: Shanghai Comp. +3.58%, Hang Seng -0.57%, Nikkei -0.24%
- In Europe 9 of 12 markets are trading lower: DAX -0.60%, FTSE -1.79% , MICEX +2.00
- Fair value: S&P -5.74, NASDAQ -3.69, DOW -69.23
- Total volume: 1.35mil ESH and 6.1k SPH traded
- Economic schedule: Motor vehicle sales and Gallup US consumer spending
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