In the world of trading nothing stays the same for very long. A few weeks ago there was an extreme bearish sentiment and this week there is an extreme bullish sentiment. The 9.5% gain in the S&P over that time frame is the single largest rally in nearly 5 years.
I was going to talk about yesterday’s upward price action, but when I woke up the ESU16 was up 18 handles and had made an overnight high of 2168.00. When the PitBull asked me earlier in the week how far I thought the ES could go I said 2160, but I could not believe my eyes when I saw where the futures were this morning. In a matter of 13 trading days, since the June 23rd Thursday night limit down move, the S&P futures have rallied 188 handles (points).
While there are some negatives out there they just don’t seem to be affecting what I call a ‘perfect storm’ to the upside. After warning that there could be thousands of job cuts in the UK, and adding to the upside party this morning, JP Morgan (JPM) just reported better than expected earnings and the Bank of England just left rates unchanged. There is a high level of moving parts right now, but it seems like it doesn’t matter if we get good or bad news, it’s all adding up to higher stock market prices.
We knew the the expiration stats were positive this week. and that the S&P would likely see a trade to at least 2150, but we also became aware of the middle of the month rebalance. While equities have been bid strongly in July, there could be some shuffling. At this point it appears that institutions, hedge funds and mutual funds all want the S&P 500 at these prices.
Last year I made a call of 2175 for the S&P 500 futures, and while it has taken it’s time, right now the benchmark index seems poised to take that out and possibly run to 2200. After every new high is made the bears come out of the caves and talk about how new highs shouldn’t be. The reality is the S&P keeps on ripping and we can do one of three things; try to short this market (which is not working), sit on the sidelines (which is a better option), or try to buy the dips (which is what seems to be working right now)… we prefer the latter.
The worldwide situation is going to continue to remain unstable, and eventually there will be a pullback. I am starting to look at some cheap lotto puts for a seasonal play, but for now, on a day to day basis I have to buy dips until they no longer work. Even if I have to turn CNBC and all the bad news off and just trade my charts.
Yesterday someone gave me this chart noting the similarities between the breakout of the 1990’s and the current market. I’m not saying the S&P can run up to 2500, and beyond, but the correlation is interesting. Then someone noted that it is different this time, and my response was that “it is always different, and always the same.” At the end of the day there is a truth that William Blount in the IMPRO forum often reminds us that “price is your arse,” and beyond fundamentals, beyond noise, and beyond mere technical projections, price will be the key.
In Asia, 7 out of 11 markets closed higher (Nikkei +0.95%), and In Europe 10 out of 12 markets are trading higher this morning (DAX +1.36%). Today’s economic calendar includes Weekly Bill Settlement, Jobless Claims, PPI-FD, Bloomberg Consumer Comfort Index, James Bullard Speaks, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 52-Week Bill Announcement, 10-Yr TIPS Announcement, Dennis Lockhart Speaks, Esther George Speaks, Fed Balance Sheet, Money Supply, James Bullard Speaks, and Robert Kaplan Speaks.
How High is High?
Our View: I speak to a lot of traders. Some of them did cover during the Brixit sell off and others did not. Some covered and resold again when the futures rallied. I am not going to question their trading but I would ask what they think they are seeing? I know what I am seeing and it’s called a ‘S&P 500 Melt Up.’ I know there is a thought process out there that with the S&P up too high to buy people try and sell the rallies. I have stayed away from that type of trading, and while I may not be making a ton of money, I am not fighting city hall. While I agree that there will be a time the ES makes a high I don’t think the rally is over. Our view remains the same; sell the early rallies and buy weakness or just be patient and buy weakness… like yesterday.
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 higher : Shanghai Comp -0.22%, Hang Seng +1.12%, Nikkei +0.95%
- In Europe 10 out of 12 markets are trading higher : CAC +0.94%, DAX +1.36%, FTSE -0.07% at 6:30am ET
- Fair Value: S&P -6.40 , NASDAQ -6.78 , Dow -87.38
- Total Volume: 1.6m ESU and 4.4k SPU traded
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