The day of, and the day after, the Federal Reserve took a pass on raising rates the S&P 500 futures sold off briefly and rallied sharply. This type of pattern has existed for the last two weeks as the ECB and the BOJ expanded their quantitative easing programs and the fed decided it could not raise interest rates. When you take a look at the S&P cash study for March, it shows the expiration week as being up the whole week, and it has been one big buy fest.
St.Pats Day Green
The major indices continued to react to the Fed’s inability to hike rates yesterday, pushing both the DOW and S&P to their highest levels since Dec 31, while the Nasdaq rose to its highest level since January 7th. Commodities rose and the dollar weakened as crude oil flirted with its 2016 high.The Dow Jones closed 56 points above its 2015 close and the S&P moved back in positive territory before falling back to close to close -0.2% year to date. The Nasdaq is still down 5% from where it started in 2016. It has been a remarkable comeback from Wall Street’s worst start ever to a year. I do not believe that anyone could have predicted how sharply the markets sold off, nor do I believe anyone thought the markets would recover so fast. So what was it that pushed stocks back up? It was just five weeks ago that Wall Street was looking at its first bear market since the 2007 credit crisis. The overall worries about China falling and a non-stop drop in oil prices sent the markets in a free fall with the S&P losing nearly 6% in the first week of the year. Additionally European weakness was weighing down on stocks. The PitBull and I said many times we had never seen a start to a year as many traders tried to make comparisons to the beginning of the credit crisis. When we look back it did have that look but when the S&Ps started jumping higher after the retest of the February 11th lows and with the exception of a few pull backs the S&P did what it does best; take bad news and turn it into good.
Whats Next
There is little left to be said. While the sound quality of the videos I did two weeks ago was not good my message was clear. The ECB, the BOJ and the US Federal Reserve all stuck to zero borrowing cost / quantitative easing going into a very statistically friendly time for stocks. With most traders positioned short, and money moving out of Asia and Europe moving back into the US, it clearly has been a perfect storm to the upside. As traders begin to focus on today’s Quad Witching expiration there is a feel out there that weakness may return next week. The stats for the Monday after the expiration show weakness ( up 13 / down 18 of the last 33 occasions https://mrtopstep.com/wp-content/uploads/2016/03/March-2016-Expiration-Stats.pdf ), but with 9 full trading days left in March I am not sure that the S&P will just reverse lower right away. What I think will happen is the S&P won’t see the big rallies like it has, but that it may take a few days to actually see any weakness. The real weakness should come in the final trading days of March and the quarterly rebalance. I’m not saying the S&P can’t or won’t pull back next week, I’m say the real weakness may not come until month end.
In Asia, 10 out of 11 markets closed higher (Shanghai Comp +1.73%), and In Europe 9 out of 12 markets are trading higher this morning (DAX +0.28%). Today’s economic calendar includes Quadruple Witching, William Dudley Speaks, Consumer Sentiment, Atlanta Fed Business Inflation Expectations, Eric Rosengren Speaks, Baker-Hughes Rig Count, and James Bullard Speaks.
Fridays Witch
Our View: The ES sold off again on Globex and rallied. The buying momentum has not let up as the S&P continues its rally from the February 11th low that now places the index on it’s 5th consecutive weekly gain. The ESM16 is now up 234 handles from its 1802.50 retest lows set back on February 11th, which accounts for a 13% rally since making the lows. Our view is unchanged, its the same view we have had for the last 2 plus weeks. As far as today’s trade? Busy in the first 45 minutes and busy in the final 45 minutes.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed higher: Shanghai Comp +1.73%, Hang Seng +0.82%, Nikkei -1.25%
- In Europe 9 out of 12 markets are trading higher: CAC +0.37%, DAX +0.42%, FTSE +0.37% at 5:30am CT
- Fair Value: S&P -9.55, NASDAQ -10.32, Dow -101.80
- Total Volume: 2.1mil ESM, 500k ESH, 7.6k SPM and 9.8 SPH traded
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