The S&P is melting up and there is not much in the way of it. Less people trading and lower volumes are working in favor of the upside. The roll over, or switch day, is tomorrow. The front month will be going to the September contact and the weekly options expire Friday. Next week is mid-month, the two day Fed meeting and the May options expiration, which may not provide much relief. So if you are waiting on a pullback you may want to start thinking of the PitBull’s Thursday / Friday low the week before the expiration.
While bullish sentiment continues to rise, so does the Dow (YMM16:CBOT), S&P (ESM16:CME) and Nasdaq futures (NQM16:CME), that all have been closing at or near new highs on the year. Helping the markets higher is a lot of new money going into stocks which helps widen out the premium levels between the S&P cash and the S&P futures. This creates index arbitrage buy programs that eventually help push the ES futures up into the buy stops.
Over last few weeks I have noticed traders trying more and more to call a top and short this market, and to the best of my knowledge, none of them are surviving. I have made my living as a fade trader, and have never felt comfortable buying an uptick or new high, or shorting a downtick or new low. In the old days, in the open outcry, the big money moved differently. It was easier to determine who was in panic and who was calm and steady, and it was easier to spy on the money flow and watch the large institutions trying to seal a low and buy a dip, and most often this resulted in a rip.
But in today’s electronic dominated market, programs allow for size to be hidden and no one knows where the smart money is. I have had to learn to trade in a way new to me and follow the intraday trends better. Watching the opening price and buying pullbacks above the open. It does not look as sexy as when I call the top or a major intraday turning point, but it also eliminates trying to fade a clear trend in low volume, and having to add to size and re-enter higher.
When it comes to this current S&P move, none of us know where the top is. I’ll admit that it’s difficult to buy this high in a world of uncertainty. I will reiterate that until the tape changes, and we see lower highs and lower lows and the bears begin to take over, then fighting the trend is going to lead to a long, hot, choppy summer with many trades but low profits.
Overnight the S&P futures traded lower early in the Asian session to the 2106.50 level, holding Monday’s globex low, before bidding higher the remainder of the session. Eventually the ES made it back to a tick shy of 2114 this morning on volume that hit 100K at at 6:15 am cst. Today’s calendar offers more than yesterday but likely not anything that will be market moving. After yesterday’s 8.75 cash session range we could be in store for more of the same. Prices we are watching are the 2106.50 floor, that has been built the last two sessions, below that is 2099.50. To the upside is the 2118.00 high from yesterday then 2020.
In Asia, 6 out of 11 markets closed higher (Shanghai -0.30%), and In Europe, 9 out of 11 markets are trading lower this morning (DAX -0.49%). Today’s economic calendar includes Bank Reserve Settlement, MBA Mortgage Applications, JOLTS, Quarterly Services Survey, EIA Petroleum Status Report, and a 10-Yr Note Auction.
Our View: Based on the closing price action, and the ES being lower overnight, we think we are getting close to a pull back. This does not mean an S&P kill job, but it does suggest a pull back to start looking for the PitBull’s Thursday / Friday low. Our view…We still think higher, but as we go into ‘hump day’ and later in the week, we think it may be time to sell some rallies. That doesn’t mean we won’t buy the ES if we see some back and fill, but it just looks too easy to be long right now.
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 -0.30%, Hang Seng -0.14%, Nikkei +0.93%
- In Europe 9 out of 11 markets are trading lower: CAC -0.36%, DAX -0.49%, FTSE -0.01% at 6:30am CT
- Fair Value: S&P -1.04, NASDAQ -0.64, Dow -8.70
- Total Volume: 1.1mil ESM and 3.8k SPM traded
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