You just never know. The S&P closes down .60% on Tuesday and continues to sell off on Globex Tuesday night into Wednesday morning. Asia and Europe both go down hard. The S&P opens lower, rallies after the open, sells off below the Globex low down to 2065.75, and then rallies all the way up to 2094.50 just after the 3:00 cash close. The first clue to the day was all the buy programs that kept coming in on the half hour. The other clue was the lack of pull backs and the Fed feeding the S&P higher like they always do. As always…what you see is not what you get.
First and Last 3 Days of the Month
Thats right, the ES sold off Tuesday and stayed weak right into yesterday’s open, and then pushed back against the global weakness. Why? Because the algos have to run the weak shorts out before they go back down. That’s how the game is played. Once the retail traders sell and they put in their buy stops the algos reverse the other way to run the stops. Like we said before the Brexit vote, you have to watch the last three days and first three days of the month, and true to form, the mutual funds took the ball and ran with it. On top of that the S&P tends to ‘always’ rally when the Fed is involved. The rally has been fully supported by the Global Central bank PPT. The Bank of England is talking rate cuts, Italy coughing up $ 40 billion to some of its ‘bad’ banks, and other countries starting to line up for more bailout money make the prospects of any further rate hikes in 2016 very unlikely. Even if Friday’s non-farm payroll number exceeds expectations there are just too many moving parts. In the past I think the Fed’s thinking was just to go it alone and start raising interest rates almost at will, but the data at home is weak, and in Europe it’s really weak. Can the S&P overcome all the negatives and keep moving higher? We think so and the main reason is there is just no place for people to put their money. From an individual investor’s point of view, I am not interested in buying Asia or Europe, but the buy US / sell Europe spread has worked and continues to work well.
One big part is the Japanese YEN, which has been strengthening against the dollar all year, and possibly contributing to a cap on equities. Yesterday, the USD/JPY found an early low just above the 100.00 level and rallied up to near 101.50 helping the equity push higher. With today’s ADP number kicking off Fridays jobs report we expect to see more interesting prices ranges as overnight global equities were mixed after a weaker Asia and stronger in Europe. The ESU traded in a 8.5 handle range from 2089.50 to 2098.00. This week’s 40 handle pullback was reasonable given last week’s 125 handle rally from the 2080.50 low to this week’s 2104.75 high. Now bulls appear to be in a good position to make a run higher above 2100, but given that hard resistance area, the seasonalities, combined with global uncertainties it’s hard to embrace the idea of new all time highs.
In Asia, 7 out of 11 markets closed lower (Nikkei -0.67%), and In Europe 10 out of 12 markets are trading higher this morning (DAX +0.77%). Today’s economic calendar includes Weekly Bill Settlement, Chain Store Sales, Challenger Job-Cut Report, ADP Employment Report, Jobless Claims, Gallup Good Jobs Rate, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, EIA Petroleum Status Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 3-Yr Note Announcement, a 10-Yr Note Announcement, a 30-Yr Bond Announcement, Fed Balance Sheet and Money Supply.
Fed Fuel
Our View: Ah.. we had it right. Bought the lows of the day (globex lows) and made 10 handles on part of the position but I got out too early on the other part and then went short and got right out. With the exception of the late day Fed sell off most of the pull back were 1 or 2 points at most. The fed fuels the S&P higher every time there is a meeting or the minutes are released. Yesterday there was a small drop after the fed headlines were released and then the ESU16 jumped up and made new high. With the exception of the early sell off the ES went straight up all day. Our view? The ES has to get past some big economic reports this morning. We think higher but we also think today could be a two way trade. We lean to selling the early rallies and buying weakness but also keeping in mind the PitBulls Thursday Friday low the week before the July expiration. Below is a link to the S&P cash study for the July expiration. As you can see tomorrow and Monday are big up days.
Download all of the July expiration stats here
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 7 out of 11 markets closed lower: Shanghai Comp -0.01%, Hang Seng +1.03%, Nikkei -0.67%
- In Europe 10 out of 12 markets are trading higher: CAC +1.20%, DAX +0.77%, FTSE +0.93% at 6:30am ET
- Fair Value: S&P -7.21, NASDAQ -7.96, Dow -91.56
- Total Volume: 2.0m ESU and 5.3k SPU traded
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