Nowhere To Go But UP
I have been part of every major stock market even since 1985, including Black Monday of the 1987 crash, the early 1990’s when the U.S. and Japan were in recession and the Gulf War took place, followed by the British Pound collapse a year later. Then the tech bubble of 1998-2000, September 11, 2001, the 2008 credit crisis, four limit down flash crash type moves since 2010, and now when the stock markets have seen a historical rally. Through all of this I have always said I have seen just about everything.
I honestly can think of only one other time when the stock market went up so much so fast, and that was in 1985. As I recall, the big S&P 500 futures (SPH17:CME) were going up every day, but it really started to rally hard a few weeks before the crash. We were executing for everyone back then, but the big account that stuck out was the Royal Saudi family. They were short 4,000 big futures and got a margin call, and CapCom, the broker they were clearing, liquidated the position without notifying them. The Royal Saudi family thought they were short and the S&P was tumbling. As it did I took the order to sell the 4,000 back out on the day of the crash.
I know Warren Buffet said that this is not at all like the ‘tech bubble’, and that the markets can go a lot higher. I can’t disagree, but I also know from experience that when the stock market rallies so much so fast, there is always a let down. Yes, the economic picture continues to improve, and (sorry Tony) the market are also going up on optimism that the new president will deliver on his campaign promises that he laid out during Tuesday night’s State of the Union address.
We are not going to do a blow by blow of the day’s trade. Basically the ESH was trading 2365 around 2:00 am and then the European equity markets started to react to the president’s speech. By the time the 8:30 futures opened the ESH was already up 17.50 handles, then the futures went on to mark the low of the day session on the open, and then got hit by one of the largest buy programs I have ever seen.
Clearly the headline news algos were picking up on all the positive tone set by the president’s speech. It was a take no prisoners type trade, meaning there were no pull backs, only new highs and down ticks. From the 8:30 bell to after 2:00 it was one buy program after another. Money is pouring back into the markets, and a friend that works at a well known mutual fund said customers are calling to get back in.
It was just a month ago when the Dow was struggling to finally print 20k, and the S&P 500 was pushing above old highs up to 2300. Now a lot has changed in terms of price. Looking at it from yesterday’s high, a 10% correction in the S&P futures would take the ES down to 2161.00, just above the level that it closed at the day after the election. The CME’s Fed Fund Rate futures are now showing an 80% probability of a March Fed hike, at this time if the Fed doesn’t raise in March then that will defy market expectation.
I have been often comparing this move to the 99-00 tech bubble, and it was reported yesterday that the DJIA 24 day 1,000 point rally was only matched in 1999. One thing was clear, there was just a little bit of money leaving equities into the end of February but a whole lot just came back in for March which is historically one of the better performing stock market months.
While You Were Sleeping
Overnight Asian markets were mostly higher, but with the Nikkei being the only higher close amongst the majors, and this morning Europe is trading very quiet and very choppy. The S&P 500 futures have traded in a 4.25 handle range between 2389.50 and 2393.75 without any momentum. As of 6:00 am cst the volume is 124k, and the last print is 2391.00, down 2.5 handles on the session.
In Asia, 8 out of 11 markets closed higher (Nikkei +0.88%), and in Europe 6 out of 11 markets are trading higher this morning (DAX -0.01%). Today’s economic calendar includes the Weekly Bill Settlement, 52-Week Bill Settlement, Chain Store Sales, Jobless Claims, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 3-Yr Note Announcement, 10-Yr Note Announcement, 30-Yr Bond Announcement, Fed Balance Sheet, Money Supply and Loretta Mester Speaks.
S&P 500 “Blowout Sale”
Our View: I am blown away by yesterdays 38 handle rip. I thought the ES was going up, but I never thought we would see #ES 2400.00. There was a lot of pain inflicted yesterday, and if you were short, or sold, you were dead. That is all there is to that! It’s just after 8:00 pm ct and the ES is exactly 10 handles off its high at 2391.50, only 31,000 ES have traded so far. The problem is the same, it is a totally one sided market. Will the ES have a sell off? I still think before the end of March, but until there is a real change in the overall price action, we could see more of the same. The other part of this is there is just no institutional selling, in fact, it’s the exact opposite. Money is ‘pouring’ back into the big US investment firms and mutual funds. Our view; after such a big day up we think we could see some sideways to down price action. You can take it from there.
Market Vitals for Thursday 03-02-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed higher: Shanghai Comp -0.52%, Hang Seng -0.2-%, Nikkei +0.88%
- In Europe 6 out of 11 markets are trading higher: CAC +0.13 DAX -0.01%, FTSE -0.07% at 6:00am ET
- Fair Value: S&P -0.56, NASDAQ +1.81, Dow -10.47
- Total Volume: 2.17m ESH and 19.3k SPH traded
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