S&P 500 Futures: Earnings, Dollar, December Rate Hike and Record Oil Production All Weigh In

Bears Have Their Day

Its was a bad day for the stock markets and a good day for the bears. From a weak overnight globex session, to a weak 8:30 futures open, things didn’t look or feel right. After the open, the S&P (ESZ16:CME), the Dow (YMZ16:CBT) and the Nasdaq (NQZ16:CME) all started selling off and continued lower all day long.

Why were the markets so weak? Alcoa kicked off the earnings season reporting weaker than expected results taking the stock down over 10%. Oil tumbled when the International Energy Agency reported a rise in oil supplies. The dollar rose .77% to the highest level since March, and last but not, least the Chicago Board of Trade Fed Funds futures contract is showing a 70% chance of a rate hike in December. On top of all that, Federal Reserve Bank of Chicago President Charles Evans said the U.S. economy is on a sound footing and that a December rate increase “could be fine.” All of this weighed in on the markets.

Turnaround Tuesday

In the ‘Our view’ section of yesterday’s Opening Print I said we expected the S&P to be weak, but we had no idea the S&P would be down nearly 40 handles at 1:30 CT. It was not one piece of bad news, it was several, and the markets reacted in kind. The S&P went from a low volume grind higher on Monday to a complete collapse on Tuesday.

Whenever the S&P 500 futures chop back and forth in a narrow range for several weeks, or months, traders become complacent. The ESZ broke through the July 11 2130.25 close, and late in the day started targeting the July 8 2120.50 close. It was not just the weakness that stood out, it was the total lack of any real bounce. The selling was constant and it didn’t let up until the ESZ made its 2121.75 low around 1:20 CT. There wasn’t a real bounce until the MrTopStep MiM started showing buy imbalances for the close. Initially the ES popped back up to 2127, then up to 2129.00, then up to 2134.00, taking back 10 handles of what could have been a 38 handle down day.

While You Were Asleep

Overnight equity markets in Asia and Europe showed some modest weakness. Most of the overseas markets were slightly lower with the exception of the NIkkei which was down over 1%. The ESZ opened the evening at 2133 and quickly made a 2131.25 low before climbing higher in the early part of the Asian session. A high was made at 2140.75 before selling off into the Asian close and the early part of the Euro session. A low of 2129.75 was made before rallying 5 handles up to 2134.50 just a few moments ago with total volume at 150K at 6:30 am cst.

The globex session held up overnight. Bulls are trying to create higher lows now as price trades in last weeks range. Today’s calendar features the FOMC minutes, which can always provide a spark of volatility to the markets, especially when volatility is already on the rise. Bears need to limit the S&P’s gains early in today’s sessions. They need to sell the early high and close at or below yesterday’s close, setting up further weakness into the end of the week. Meanwhile bulls need to respond with a trend day higher, at least retaking last Thursday’s 2145 close.

In Asia, 8 out of 10 open markets closed lower (Nikkei -1.09%), and in Europe 8 out of 11 markets are trading lower this morning (DAX -0.02%). Today’s economic calendar includes the Bank Reserve Settlement, MBA Mortgage Applications, William Dudley Speaks, Esther George Speaks, JOLTS, a 3-Yr Note Auction, a 10-Yr Note Auction, and the FOMC Minutes.

Our View

It’s hard to say what’s next. The ES goes from going sideways to higher, to an over 1% drop. It’s very hard to gauge. That said, if the ES does what it’s supposed to do today, it should start going back up. The support levels we are looking at are the 2120 and 2113 area.

I didn’t listen to what I wrote in the OP yesterday about the ES being weak in the first part of the day. I lost money because I didn’t follow my plan. That’s not how one should trade, and it leaves you open to losses that should not take place. The way this game is supposed to be played is to take small losses and let the winners run. That is the only formula that works. Our view, the ES rallied late in the day but didn’t gain any real traction overnight. It’s possible we see some type selling / pull back, but ultimately I think the ES goes back up. I want to get a look at the ESZ16’s price action after the 8:30 open before I go flying in. Have a good day traders and make sure you use stops.

As always, please use protective buy and sell stops when trading futures and options.

  • In Asia 8 out of 10 open markets closed lower: Shanghai Comp -0.22%, Hang Seng -0.60%, Nikkei -1.09%
  • In Europe 8 out of 11 markets are trading lower: CAC -0.11%, DAX -0.02%, FTSE -0.15% at 6:00am ET
  • Fair Value: S&P -6.26, NASDAQ -6.91, Dow -90.27
  • Total Volume: 2.2 ESZ and 9.6k SPZ traded

 

Tags:

No responses yet

Leave a Reply