ESZ15:CME 5 Day Trend Chart starting to show Fatigue
The S&P upside steamroller continued its ascent on Sunday nights Globex session right into Monday mornings 8:30 CT open. As of yesterday’s close the S&P futures (ESZ15:CME) have closed higher 10 out of the first 13 trading days of October. The global stock markets have done a u-turn and it’s the S&P 500 leading the way.
In most cases, the S&P would ‘top out’ or pull back after such a large rally, but the sellers are being absorbed. I have never pretended to be a know it all, and I will be the first to admit that some of my calls have been off, but I also have to ask myself; has something changed? How can the global stock market and the S&P 500 fall so sharply and then reverse so hard with no pull backs? I asked the PitBull that very question and he came right back saying there are more algorithmic programs hitting in the last 6 months. He also pointed out that Goldman Sachs and Morgan Stanley reporting lower than expected earnings, and lower trading revenues, are not a good sign. We all know that things that used to work don’t work anymore. We also know that as traders we live in an ‘ever changing’ trading environment that takes no prisoners, where managing risk has become front and center.
After thinking the markets were going to crash, the VIX has flattened out and the market seem to have a more normal feel to them, almost the same feeling they did at the beginning of 2015 before all the rate hike talk. The current rally has gone further than many expected, so will the pull back be larger? It doesn’t seem that way. Buyers have reappeared in the stock market and the buying has continued to show up almost everyday this month on the 2:45 CT cash imbalances. Yesterday the MiM start out showing $1.7bil to buy before it down ticked to $800mil to buy and ended up SPX Buy $1.6bil. When will the S&P pull back? We think soon but we also thought that last week.
S&P Up 8% Since Late September
Yesterday, crude oil fell 3% over concerns of slower economic growth in China and Iran, saying it was going to Iran to ramp up production. Gold closed at $1173.40, up 0.23%.The way we see this is the year end mark up has already begun, and with the Fed unable to raise interest rates this year, the mutual funds are back buying stocks. The S&P continues to climb, but for how long? After a 170 handle rally the S&P is running into resistance. There is a big band of resistance from the 2045 to 2055 level. While the sellers have been testing the waters on the sell side, significant resistance should show up at the 2045 to 2060 level. Some traders we talk to still think that the big bounce could be just that, and that a larger sell off could unfold, but we still think any pull back or sell off will be bought.
In Asia, 6 out of 11 markets closed higher (Shanghai Composite +1.14%), and in Europe 8 out of 12 markets are trading lower this morning (DAX -0.52%). Today’s economic calendar includes Housing Starts, Redbook, New York Federal Reserve Bank President William Dudley and Federal Reserve Gov. Jerome Powell give opening remarks at NY Fed conference on the structure of the treasury market, and Federal Reserve Chair Janet Yellen welcoming remarks at Labor Dept. ceremony, in Washington.
HOUSING WEEK
Our View: Are you scratching your head?…I am. I have had a decent feel but trading it has been difficult. Today there are a low level of economic reports and a high level of earnings reports. Jerome Powell and Janet Yellen from the Fed are both speaking. The VIX traded under 15.00 on the close. Our view is that the ES is overdue for a pull back, but the buyers are not letting up. Sell the early rallies and buy weakness. 2045 on TAP.
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. +1.14%, Hang Seng -0.37%, Nikkei +0.42%
- In Europe 8 out of 12 markets are trading lower : CAC -0.89%, DAX -0.52%, FTSE -0.44% at 5:30 am CT
- Fair Value: S&P -7.76, NASDAQ -11.21, Dow -98.38
- Total Volume: 1.3mil ESZ and 3.4k SPZ
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