Yesterday, the S&P 500 futures were unable to clear, or even touch, the 2100 ceiling of resistance. What started off as a quiet session eventually lead to a new multi month low. The ESZ opened at 2095.00, up 6.5 handles, made an early high of 2097.25 in the first hour, then drifted lower throughout the rest of the day. Going into the final minutes of the session, the futures dropped all the way down to 2079.75 before bouncing back to settle at 2084.00, down four handles on the day.
It was a strange day. The S&P futures (ESZ16:CME) were considerably weaker than the Dow Jones futures (YMZ16:CBT) throughout the morning and afternoon sessions. At certain points the (YMZ16:CBT) would be up ticking while the S&P was down ticking. We are not 100% sure why that was going on, but we tend to think there was some type of rotation, buy Dow / sell S&P, and that most of the late day selling or hedging was centered on the S&P.
Aside from trading top heavy at 2150 in recent weeks, and the bearish seasonals, this was not enough for weakness to show up on Wall Street. However, after Hillary Clinton began to dive in the polls, equity portfolio managers have been protecting risk. MrTopStep still sees a hard road for Trump, needing to win Ohio and Florida, but also either Virginia or North Carolina, and then three out of the four Nevada, Colorado, Iowa, and New Hampshire. While polls show Trump more competitive across the board, it looks like too steep a mountain to climb.
Meanwhile, an analyst from Citi suggested that the S&P 500 would sell off at least 5% on a Trump victory, and that the U.S. would likely be plunged into recession. This is based on Citi’s institutional poll conducted in September ascertaining the general mood of Wall Street surrounding a potential Trump presidency. However, Barclays predicted a possible 11-13% decline. This market is vulnerable to the polls between now and Tuesday, and MrTopStep believes that Hillary is most likely to win, and all of the “sell the rumor” going on now in the market will be “buy the news” Tuesday night. Note, this is not an endorsement of HRC, just an observation and analysis.
While You Were Asleep
Overnight equity markets in both Asia and Europe were noticeably weaker as they continue to follow the lead of Wall Street. The ESZ6, however, held up during the overnight weakness, opening globex at 2084.00, trading up to 2186.75, then back down to 2080.50 in a quiet trade. Last print in the ES is 2083.50, down two ticks on the session with volume of 172k as of 7:20 am cst.
Heading into today’s session is the October non-farm payroll number, which Goldman is looking for 185K, Morgan Stanley 205k, BofA/ML 170k, Barclays 175K and UBS 175K. Also, historically speaking, the August and September months are revised higher as well. In recent months the NFP has seemed to become the primary barometer for anticipating an interest rate change. If today’s print comes in line, then we expect for Fed Fund Rate Futures to see further weakness, and the likelihood of a rate hike will climb.
As always on NFP, we will be keeping an eye on the walk away trade. With the current weakness in the S&P, if it sells off after the NFP and the volume is over 300K before the open, we could see a run on some buy stops in the session. The S&P 500 futures need to get back to 2100 for bull. Bears want to keep applying the pressure and push the index futures down to 2050 today.
In Asia, 8 out of 11 markets closed lower (Nikkei -1.04%), and in Europe 10 out of 10 markets are trading lower this morning (DAX -0.80%). Today’s economic reports includes the Employment Situation, International Trade, Dennis Lockhart Speaks, Rob Kaplan Speaks, the Baker-Hughes Rig Count, and Stanley Fischer Speaks.
Unenjoyment Friday
Our View: While the S&P has been selling off, by no means is it crashing. Last Friday, the ESZ16:CME traded down to 2112.50 and settled at 2123.75. I have said many times over the last month that the public is running scared, and I still feel that way. Even Trader Dave said the ‘election’ is starting to bother him, and in all honesty, I agee. The run for the White House has been, and will continue to be, a mess long after the choice is made.
This morning the markets are anxiously awaiting the October jobs report. According to Bloomberg – Jobs Friday – Non-farm payroll: Prior 156k, Consensus 178k, Consensus Range 155k to 200k. This is going to be a big number. Should it come in lower than consensus the Fed will back off on its push to raise interest rates in December. A number above consensus will only solidify the push.
Our view this morning; we think there is a pop to the upside coming. It’s 10 minutes before the jobs report and there is only 170,000 ESZ traded. We lean to buying the ES if it drops sharply. We can’t rule out selling some rallies, but my gut says we see some type of short covering rip. We shall see…
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower: Shanghai Comp -0.12%, Hang Seng -0.18%, Nikkei closed -1.04
- In Europe 10 out of 10 open markets are trading lower: CAC -0.89%, DAX -0.80%, FTSE -0.32% at 6:00am ET
- Fair Value: S&P -5.20, NASDAQ -4.86, Dow -82.39
- Total Volume: 1.8m ESZ and 4.0k SPZ traded
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