The markets tend to go quiet after a big directional move, but they also slow down as the summer grinds on. Traders take money out of their accounts to go on vacations, volume drops, and the trading ranges get thin.
This is the time of year that traders take time off. Ordinarily, when the markets get slow during the summer, the big investment firms and hedge funds offer some of their traders time off. In most cases the markets are slow and it’s a great time to not get ‘overly’ involved, but with Brexit, the French attacks, and the ESU16’s nearly 220 handle rally in three weeks, there has been no time to take off.
Hedge funds that were over hedged, banks cutting risk, and mutual funds selling stocks all eclipsed on Monday, June 27th when the S&P 500 futures (ESU16) traded all the way down to 1981.00. Then came the comparisons to Lehman Brothers going out of business during the height of the credit crisis. There was just enough doom and gloom to push sentiment to an overbalanced negative and give the S&P 500 enough fuel to run stops higher into new all time highs.
It took until mid July to finally see a summer market. While yesterday’s range was just over six handles in the cash session, volume has yet to dip below 1 million contracts, but this may change today. With this week’s light calendar it’s not going to get any better.
How long will this summer trade last? Likely just long enough to get people feeling calm before volatility rises with more rate talk and the election season coming up. Not to mention the seasonal weakness coming into play. The PitBull reminded me this week of the same thing he mentioned last year about how this market feel reminds him of years past when it typically sees a high late in July then a sell off in August. He last told me this in 2015. and we all can recall what last August brought in terms of volatility.
What can we say about yesterday? The highs, the lows, and the choppy behavior are easy to spot on the chart and will likely continue today. The markets have been quiet and so we will be pretty quiet today and keep this short.
Overnight, global equity markets again began to inch higher and the ESU16 rallied up to 2167.25, just three ticks shy of a new high. If it can turn the 2162 resistance area to support, then perhaps we will see 2175 next, and a potential run up to 2200 in the days to come. I know the ES seems “too high to buy,” but this is the reality we are in.
In Asia, 6 out of 11 markets closed higher (Nikkei -0.25%), and In Europe 11 out of 12 markets are trading higher this morning (DAX +1.30%). Today’s economic calendar is very light and includes Bank Reserve Settlement, MBA Mortgage Applications, EIA Petroleum Status Report.
Our View: Today we have a low level of economic releases and some earnings reports to get past in the first part of the day. What do we expect after that? We think we could be in for another quiet day of narrow trading ranges. As you can see the volume of the ESU has going from 1.6-1.7 million contracts a day down to 1.1 million. This is creating a ‘think to win’ effect. I still think the next 40 handles from 2160 is down, but if Europe keeps pushing higher in thin markets, U.S. equities will go with.
Crude oil keeps stumbling and has been unable to hold above the vwap, but it looks like it’s trying to do some ‘back and fill’ also. Despite a 287 handle rally off the 1981 low the ES has yet to have any real significant pull backs. Remember, the trend is your friend. That said, our view is to sell the early rallies and buy weakness with a bias to the down side. 2175.00 could be on the radar.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 6 out of 11 markets closed higher: Shanghai Comp -0.29%, Hang Seng +0.97%, Nikkei -0.25%
- In Europe 11 out of 12 markets are trading higher: CAC +1.02%, DAX +1.30%, FTSE +0.13% at 6:30am ET
- Fair Value: S&P -6.02, NASDAQ -6.87, Dow -77.42
- Total Volume: 1.15m ESU and 3.2k SPU traded
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