In yet another stunning rip to the upside, the S&P 500 futures (ESM17:CME) traded all the way up to 2375.00, just 26 handles (points) from its all time contract highs, as U.S. Non Manufacturing activity expanded at a slower pace in March. Initially, the S&P got a boost from the two A’s, Amazon and Apple. That was the good part. The bad part was when the Fed caused the biggest reversal in over a year.
The S&P 500 futures opened at 2358.75 and upticked to 2663 on the 8:30 ct open. From there the futures started to make a series of higher lows before just flat out taking off to the upside. The rally took out several big lines of buy stops. The first set started above 2358 up to 2363.00 – 2365.00, and then again above 2368.00, all the way up to the highs of the day. It was a great example of what we call an ‘algo stop run.’ After the high was made the ES pulled back down to 2372.00 area, and then broke further down to 2365.00 before pushing back up to the highs and slowly started to pull back.
Earlier in the day the ADP payroll report added 263,000 jobs in March. Generally, this is a good indicator of the unemployment report coming up this Friday, which currently has a consensus of 170,000. Another surprise out of the ADP number was a multi-year high increase in financial services jobs. The big news came out of the FOMC minutes when the fed suggested that the reduction of its massive balance sheet will begin later this year. The also discussed the ending of the use of the reinvestment of both treasuries and mortgage bonds. The FOMC members have also become weary about the high stock market valuations and rallies in other risk assets. This pushed the chances of three more rate hikes back to a 50% chance.
In the end, the markets giveth, and the markets taketh away. As I said early in the week, I still think there is some unfinished business on the downside. As for the days overall tone, it was from a big bull move up to the biggest reversal so far this year. It’s hard to discount that. As for the days overall volume? It was light in the first part of the day, but as the fed headlines started to come out, volume nearly doubled.
Fed Causes Biggest Reversal of the Year
As the the Fed headlines hit the tape the S&P started giving back its gains. As fast as the (ESM17:CME) went up in the first part of the day, it went back down even quicker. For the first time in months the S&P had a big pull back in response to Fed news. It took two hours to run the ESM up 17.50 points to its 2375.00 high, and just another two hours to knock the ES down 25 handles to its 2343.75 low.
While You Were Sleeping
Overnight, global equity markets in Asia and Europe followed the weakness on Wall Street, sending most of the major markets into the red. In the U.S., the S&P 500 futures opened the globex session at 2345.50. It looked the futures tried to go higher into the Asian open, but failed, sending the futures down to 2339.50 early in the Tokyo session. From there, the ESM found a bottom and rallied up to a session high of 2350.00 just a few minutes ago. As of 6:06 am cst the last print is 2348.75, up 2.25 handles, on volume of 175k.
In Asia, 8 out of 11 markets closed lower (Shanghai +0.33%), and in Europe 9 out of 11 markets are trading lower this morning (DAX -0.49%). Today’s economic calendar includes the Weekly Bill Settlement, Chain Store Sales, Challenger Job-Cut Report, Jobless Claims, Gallup Good Jobs Rate, John Williams Speaks, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 3-Yr Note Announcement, a 10-Yr Note Announcement, a 30-Yr Bond Announcement, Treasury STRIPS, Fed Balance Sheet, and Money Supply.
Our View
Weird, the VIX traded to $13.59 on Monday, then pulled all the way back down to $10.90 as the futures were trading on their respective highs yesterday. When the ES dumped almost 32 handles (points), the VIX only rallied up to $12.89. While the VIX may not have showed a high level of doubt about where the S&P is going, there is a lot of doubt out there about the likelihood of Trumps agenda. A Credit Suisse survey shows that Trump has a 61% chance of passing his corporate tax plan, and a 9% chance of passing his health care bill. There are a lot of unanswered questions out there, and we all know how the markets dislike uncertainty.
Our view; we have a fairly busy economic schedule. It’s my guess the damage done yesterday is not over. Buy the early weakness and sell the rallies, meaning any 10 to 15 handles pops.
PitBull: CLK osc 24/-6 turns up on a close above 5157, ESM osc 2/-4 turns up on a close above 236606, VIX osc 2/1 turns down on a close below 1180.
Market Vitals for Thursday 04-06-2017
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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 lower: Shanghai Comp +0.33% , Hang Seng -0.52% , Nikkei -1.40%
- In Europe 10 out of 11 markets are trading lower : CAC -0.23%, DAX -0.54%, FTSE -0.51% at 6:00am ET
- Fair Value: S&P -3.12 , NASDAQ 1.50, Dow -57.99
- Total Volume: 1.93mil ESM and 24k SPM traded
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