ES 06-15 (5 Min)  3_16_2015

Something is going on. The conspiracy theories are out there. Everything from the currency markets to crude to the S&P are coming unglued. The S&P futures have closed lower 9 of the last 12 sessions or down 6 of the last 8. As the S&P tumbled on Friday, fellow ex-floor trader Tony LaPorta sent this out to his clients. Tony titled it: MORE CRAZY THOUGHTS

This euro is flirting with some panic levels dragging Wall Street with it.  If it gets ugly (ON A FRIDAY NO LESS) it could get “panic ugly” which will bring a “panic bid” to the bonds and possibly the yen.  I am long the bonds with a “panic offer” in the market at 16727…YES THAT IS RIGHT…16727.  Go look at your ZBM chart and you will see where I got that level from.  The euro just went through 10500.  Look out below.  I wouldn’t be long Wall Street with your money.  

Tony LaPorta visited me on the trading floor of the CME group a few years ago, and while we walked through the crowd he knew many of the people in the pits but he wanted to see one person; Rick Santelli. When we visited Rick he said he remembered Tony, but as they spoke Tony said something to Rick I never forget. Tony told Rick that the next big trade was going to be in the currencies and that there were going to be currency wars. Rick agreed 100%.

BONDS / S&P / DOLLAR

After a rocky week of ups and downs, the S&P futures were all over the place during Friday’s trade. There was a small push higher, then a big selloff and later an afternoon selloff that took the ESH15 all the way down to 2030.75 …  and then out of nowhere a late-in-the-day 16-handle rally. Bonds traded higher throughout the week. But traders were more concerned about the rising dollar. While the unwind between stocks and bonds is important, the historical drop the strong dollar hurts overseas profits. Most traders we talked to on the floor of the CME Group said the dollar’s climb against other currencies will slow down sales by US corporations overseas. A strong dollar hurts overseas profits by dampening demand for US exports as they become more expensive, thus reducing profit values. On Friday the euro sold off to a 12-year low against the dollar, down 1.3% to $1.0488 after Thursday’s rebound. David Lefkowitz, senior equity strategist at UBS Wealth Management Research, said, “The dollar has been one of the biggest surprises in terms of how it continues to strengthen.”

Over the last several weeks the S&P has gone up and down while the dollar has ground higher. There was a lot of concern late in the day on Friday that the collapse of the euro could potentially lead to a stock market crash. During Sunday night’s Globex session the S&P 500 futures did the reverse, trading all the way up to 2050.25. Volume in last night’s session seemed to be a little above average. While the currencies will continue to be front and center on many traders’ screens this week, they will also be focusing on the fence today meeting to see if investors can get more clarity on when the Fed will start to raise interest rates. With that in mind it should be a very volatile week.

In Asia 6 out of 11 markets closed higher and at 6:00 CT in Europe 8 of 12 markets are trading higher this morning. This week’s economic calendar includes 16 separate economic releases, 10 T-bill or T-bond auctions or announcements, the two-day Fed meeting, 3 Fed presidents speak and the March quadruple witching. Today’s economic calendar starts with the Empire State mfg survey, industrial production, Housing Market Index, 3- and 6-month T-bill auction and the Treasury international capital number.

2-Day Fed Meeting on Tap

Our view: There was panic in the air late Friday. The currency wars Tony was talking about started actually showing up in the S&P. But when you take the S&P futures volume and take out all the spreads and Globex volume, what you find is a very low-volume market. After 2 o’clock Central time the S&P fell apart and staged a huge recovery. We were not sure if the S&P was pushing back against a weakness in the euro or there was just not selling pressure to keep the S&P down going into the close. What we do know is that the week started out quiet then picked up considerably. Will the pickup continue this week?

It very well could if things get worse for the euro currency. That said, if you look at the PitBull’s trading rule about looking for a low the Thursday or Friday the week before the expiration, then Friday could’ve been it. In the end, despite the late rally the overall tone of the stock market remains in question. There are a lot of moving parts right now in the collapse of crude oil and the euro currency remains front and center.

Our view is this could be a very rocky week for the S&P. In addition to the big drop in crude oil and euro currency the Federal Reserve’s two-day meeting starts tomorrow. Right now the news algorithms are reacting to every negative headline about the euro currency and crude oil, but this week the Fed’s two-day meeting will get the headlines going about higher rates. Our view is we think we see some type of bounce today. If the ESM takes out the 2031-2033 area we could see 2020 pretty quick. If not it could be back to 2058-2060.

 “Euro Collapse Sends S&P Sharply Lower”


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

  • In Asia 6 out of 11 markets closed higher: Shanghai Comp +2.26%, Hang Seng +0.53%, Nikkei -0.04%
  • In Europe 8 of 12 markets are trading higher: DAX +1.20%, FTSE +0.22%, MICEX -0.90%, Athens GD.AT -2.63%
  • Fair value: S&P -8.18, Nasdaq -8.22, Dow -82.56
  • Total volume: 1.72k ESM and 23k SPH traded
  • Economic schedule: Empire State mfg survey, industrial production, Housing Market Index, 3- and 6-month T-bill auction and Treasury international capital.

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