Things are getting spooky and it’s not even October yet. In the last 5 trading days the S&P futures (ESZ15.CME) have gone from a high of 2011.75 down to 1897.25, more than 114 handles. Clearly the historical stats showing the S&P down the week after the September Quadruple Witching got a downside ‘kicker’ when Volkswagen disclosed it had lied about its emissions testing. What started out as a big negative for European car companies, has now spread to the departure of several key VW board members, and has helped depress auto stocks around the world.
It seems like there are a lot of reasons to be selling stocks right now, but VW gave people a lot more reasons to sell, and it started overnight when the headline news algos picked up on the news that Matthias Muller from Porsche was being named new VW CEO. Martin Winterkorn resigned as the company’s CEO and more resignations were expected to come from other VW principles and board members.
The S&P futures closed down on Wednesday, opened Thursday’s globex session at 1931.75, and traded lower early in the Asian session. After a failed rally into the Euro open, the futures tanked along with the European indexes as the ESZ15 traded down to 1907.75 in globex, down about 25 handles. On the U.S. cash open, sell programs took over immediately as the index futures went from a 1913.25 open down to a low of 1897.27 in the first 90 minutes of the session, down 34 handles at its lowest point. Heading into the European close the equity markets began to rally, and continued to rally into the day’s close making a late day high of 1926.75 within 5 handles of going unchanged before settling at 1919.50, down 12 handles from Wednesday’s close.
Last night the futures opened at 1913.25, 6 handles lower, but rallied off the open into the Asian open, and again into the Asian close/Euro open making a high of 1951.00 shortly after 3:00 CT and is currently trading more than 10 handles off the overnight high at 1940.00, up 21 handles on the day at 6:15 am CST.
Yesterday after the close Janet Yellen spoke reiterating her perceived likelihood that interest rates would rise by years end. It just seems like more of the same, saying the right thing in speeches, but the Fed afraid the “pull the trigger” and commit to the rhetoric. And while CNBC is reporting that futures are higher somehow due to her speech, we think this is unfounded. It was more of the same from Yellen, no surprises, the market’s are taking her less seriously, I believe, after September’s almost unanimous vote not to raise rates. What we are seeing in the futures rally is all about Europe. The foreign markets have had their share of weighing down the U.S. indexes, first with Asia, and this week with Europe, but overnight we see a rally particularly in the Euro indexes which are holding up solid and noticeable gains after being weak the last few sessions.
In Asia, 6 out of 11 markets closed higher (Shanghai Comp. -1.60%), and in Europe 11 out of 12 markets are trading higher (DAX +2.35%) this morning. Today’s economic calendar starts with the US GDP, Corporate Profits, St Louis Federal Reserve Bank President James Bullard speaks on new directions in monetary policy, in St. Louis, PMI Services, Consumer Sentient, Kansas City Federal Reserve Bank President Esther George speaks on the economy and monetary policy, in Omaha.
T+3
Our View: The European auto companies have clearly weighed down on the global markets and the S&P, but it could have been worse, which brings us to to why the ESZ15 rallied so hard yesterday. The first part is like last week when the ESZ saw everyone had gone from long into the rally to short into the decline. From the 2011.75 higher to 1897.25 the ESZ has dropped 114 handles in less than 5 full trading sessions, and we were right on when we were warning about the week after the September Quadruple Witch being down. Now the question is, after such a big sell off, and the final 4 trading days of the quarter, can the S&P rally? Statistically it’s supposed to, but I am just not sure the futures will hold.
Our view; The ES has not gone down like many thought it would over the last few Fridays, and after yesterdays up swing, we think there could be more upside coming our way. Can it continue? Sure, but not all the way into the end of the quarter. You can sell the early rallies and buy weakness, or just buy weakness when the ES pulls back.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed higher : Shanghai Comp. -1.60%, Hang Seng +0.43%, Nikkei +1.76%
- In Europe 11 out of 12 markets are trading higher : CAC +3.02%, DAX +2.40%, FTSE +2.31% at 7:30 am CT
- Fair Value: S&P -10.60 , NASDAQ -13.85, Dow -110.74
- Total Volume: 2.2 mil ESZ and 3.6k SPZ
- Economic calendar :US GDP, Corporate Profits, St Louis Federal Reserve Bank President James Bullard speaks in St. Louis, PMI Services, Consumer Sentient, Kansas City Federal Reserve Bank President Esther George speaks on the economy.
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