With the U.S. budget bill passed over the weekend, and all of the European exchanges closed for the the May Day holiday, the S&P 500 futures had a very quiet day. The (ESM17:CME) made a high on Globex at 2388.75, but sold off a little before the 8:30 CT futures open. On the open, the ES traded 2386.00, sold off down to 2380.75 early in the session, rallied back up to 2387.50 (triple top), and then sold back off down to 2381.25, two ticks above the previous low. After that, the futures traded up to 2390.75, completing a 10 handle rule. There were a few things at work yesterday, and one of them was the extremely low volume.
There were only 69,000 contracts traded on Globex, the lowest for a non U.S. holiday in over 10 years. I have alway been big on talking about the volume. At the height of the credit crisis the S&P 500 futures were doing all time record volume. In March of 2009 the ES did 6.9 million contracts in one day. There was a stretch where the futures did over 5 million a day. There is no doubt that all the bank failures, hedge fund blowups, prop trading desk closures, and all the new regulations, were a big part of it, but MF Global and PFG were a kick in the futures industry’s face.
The other part of yesterday low volume was the May Day holiday across Europe.The ES volume has been going down steadily over the last 6 years. Today, the average volume in the S&P is 1.2 – 1.3 million contracts, and sometimes lower.
The third, and final part, of the day was the CBOE’s Volatility Index falling. The VIX sold off down to 9.90, and settled down 6.6% at 10.11, its lowest level since February 2007. According to Russell Rhoads, director of education at the Chicago Board Options Exchange, ‘the VIX, briefly fell Monday as low as 9.9 for the second time in 2017, after more than eight years without dipping below 10.’
For months I have been saying there is a high level of complacency, and since the French election, the VIX has tumbled 30%. I understand the beating the VIX has taken, but I also think that it can move back up just as quickly as it fell. The lower it goes, the higher the risk. That’s how this is played. That last time the VIX got this low was in July 2014, followed by a few weeks of very quiet markets. Then, the ES bottomed in July 2014, and the VIX rallied 150% through Oct. 15 of that year. While I do not doubt the VIX can fall further, I know the risk levels will continue to increase.
In the end, the S&P 500 futures closed at 2386.75, up 6.00 handles, or up .28%. The Dow Jones futures (YMM17:CBT) dropped 16 points, or -0.07%. The Nasdaq 100 futures (NQM17:CME) was the real winner, closing up 51 points at 5632, up .85%. Technology stocks have been the clear winner over the last four months, and they continue to lead the markets higher. It was the first time that Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), Amazon.com (MZN) and Facebook (FB) all traded to new records highs on the same trading day. Investors looking for value have been buying the big name tech stocks, and there seems to be no let up.
While You Were Sleeping
Overnight, stock markets in Asia were mixed, but with an overall higher tone, followed by Europe, which is moderately higher across the board. In the U.S. the S&P 500 futures traded quietly, opening globex at 2386.25, and making an early high at 2388.25 an hour into the Tokyo session. After that, the futures drifted lower, down to 2384.25, completing a four handle range, and has since tested that overnight low multiple times. As of 7:30 am cst, the last print is 2386.50, down two ticks, with just under 85k contracts traded.
In Asia, 6 out of 11 markets closed higher (Nikkei +0.70%), and in Europe 12 out of 12 markets are trading higher this morning (FTSE +0.55%). Today’s economic calendar includes Motor Vehicle Sales, FOMC Meeting Begins, Gallup US ECI, Redbook, and a 4-Week Bill Auction.
Our View: Thin To Win
The S&P 500 futures (ESM17:CME) is less than 1% away for its all time high at 2401. If the volume is low again today, there is a good chance the futures start to run the upside buy stops. Yesterday the stops started at 2388.70 and went to 2394.00. Today we see stops 2392.70 up to 2396-2397. There is a light economic schedule today, but it is the first day of the two day FOMC meeting. According the the CME’s Fed Funds Rate Futures, there is a 5% chance of a May rate hike.
Our view is onward and upward. You can sell the early to mid day rallies and buy weakness, or just wait for the ES to pull back and buy it.
Market Vitals for Tuesday 05-02-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed er: Shanghai Comp -0.33%, Hang Seng +0.33%, Nikkei +0.70%
- In Europe 12 out of 12 markets are trading higher: CAC +0.41%, DAX +0.16%, FTSE +0.15%
- Fair Value: S&P -3.97, NASDAQ -3.19, Dow -67.90
- Total Volume: 906k ESM and 1.6 k SPM traded
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