Buy The Dips
Nearly 3 months ago when the S&P futures opened down over 100 handles and went ‘limit down’, I stuck to my call that the S&P futures would close out the year at 2200. After the August 24th selloff, the S&P rallied hard, but eventually fell back to retest the 1861 level. Again, I stuck to my guns that the year end was going to lead to higher prices as “smart” money would start marking up stocks at year end.
This was again the case Sunday night when the futures fell to 1998.50 during the initial response to the French terror attacks. Again, money swept in and the ESZ moved more than 60 handles higher in two session.
MrTopStep has been writing about how every pullback this time of year is a gift. We wrote two weeks ago how my downside call was contrary to the CNBC pundits. I still maintain that a pullback is a gift leading to a buy opportunity to capitalize on higher prices. Many are saying that the current situation is different, but this has been the same old story for the last 3 years, or even since the March 2009 lows. At the end of the day, dip buyers have been rewarded each time, and until the dip buying doesn’t work the message remains the same: buy weakness when it comes.
Turn-Around Tuesday?
Yesterday the S&P futures (ESZ15:CME) traded up to a daily high of 2063.50, and then sold off more than 20 handle down to 2941.50, late in the day, before settling at 2049.50 on the 3:15 CT futures close, up marginally higher on the day. After a big run up Monday, and then early strength Tuesday, bears had their chance to take the S&P lower and recapture this market. Despite the 22 handle pullback from the highs, the bears eventually lost the close, as the index futures rallied 8 handles into the cash close.
Heading into the mid and latter half of the week the technicals appear to be a jump ball between bulls and bears after Tuesday’s price action. However, the seasonals tend to clearly favor the bulls as the Tuesday of November expiration week is the weakest day of the period. Over the next few sessions the stats only become stronger as we expect volume to dry up heading into the end of the pre-holiday week, which in turn may lead to higher prices, perhaps even making a run to 2100.00
FOMC Minutes & Headline Risk
After the surprise terrorist attacks in Paris on Friday, there has been an uptick of concern worldwide with breaking news headlines out of Europe, such as yesterday’s football match cancelled between Germany and the Netherlands with Hanover Stadium having been evacuated due to security concerns. This news came on top of reports of a British Airways flight landing at Boston’s Logan Airport with an unruly passenger who was trying to force unauthorized access to the jet, and after the market close, a terminal closed due to an unattended backpack at Chicago’s O’Hare Airport.
Unfortunately, we do not live in an perfect world, there is much fear and a lot of anticipation, and these headlines carry over to the markets. Fear is the author of panic, and the response of algorithmic trading to any breaking headlines is unpredictable.
Lastly, today will be the release of the FOMC minutes. Given the volatility after last month’s release of the September FED minutes, one can expect that with the greater anticipation surrounding the FED move, that the October minutes release could induce a strong algo initiated move paving the road to 2100, or back to retest this week’s low.
In Asia 8 out of 11 markets closed lower ( Hang Seng -0.34%), and in Europe 8 out of 12 markets are trading higher (DAX -0.51%). Today’s economic calendar includes the MBA Mortgage Applications, New York Federal Reserve Bank President William Dudley, Atlanta Fed President Dennis Lockhart, and Cleveland Fed President Loretta Mester on panel at Clearing House Payments System Risk Symposium, in New York, Housing Starts, Atlanta Fed Business Inflation Expectations, EIA Petroleum Status Report, Dallas Federal Reserve Bank President Rob Kaplan speech on economic conditions and monetary policy, in Houston, and the FOMC Minutes.
Our View: The French did some raids last night, and it pushed the ESZ15 down to 2043.00, but since then the futures have rallied back to 2054 around 7:00 am ct. We have some economic and earnings reports to get past, but the big show is the 1:00 CT release of the FOMC minutes. Our view is that over the next few days the ESZ will firm up as it heads into the November options expiration. We lean to selling the early rallies and buying weakness. As you can see by the S&P cash study the stats get better as the week goes on.
See all of the November expiration stats here…
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower : Shanghai Comp. -1.01%, Hang Seng -0.34%, Nikkei +0.09%.
- In Europe 8 out of 12 markets are trading higher : CAC -0.72%, DAX -0.51%, FTSE -0.21% at 6:00am CT
- Fair Value: S&P -3.32, NASDAQ -1.56, Dow -39.31
- Total Volume: 1.6mil ESZ and 5.4k SPZ
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