Wild swings in the S&P and crude oil futures continue to dominate the markets. After closing lower five days in a row, the S&P futures (ESH15:CME) gapped higher off the 8:30 open Tuesday, rallied slightly, then reversed lower, taking the futures down 25 points in the early going, then rallying 22 handles before going into the 2:45 imbalance with a small selloff. Wild swings in crude oil futures (CLH15:NYM) only added to the volatile trading day.
The S&P made its low just as several European stock markets started to close, and after the pop back up and some “back and fill” price action the S&P managed to rally 22 points, closing higher. While the volume was down slightly, there was little doubt that algorithmic and program trading were a big part of the day’s swings.
At the end of the day the Dow Jones futures (YMH15:CBT) closed up 29 points or less than 0.1%. The S&P 500 closed up 3.75 points or 0.2% and the Nasdaq futures (NQH15:CME) closed up 33 points or 0.4%. The overall trade felt like investors were holding back from buying and selling going into Thursday’s ECB meeting.
US stocks are a safe haven
When they do go back to buying and selling, where will their money go? Three overseas events dominate this week: a Bank of Japan statement on monetary policy, the IMF’s cut in expectations for global growth almost everywhere except the US, and the ECB’s announcement on stimulus, which most economists surveyed expect will be a 550 billion-euro ($638 billion) program of quantitative easing. Bloomberg reports that at least two Fed officials are saying that they have more cautious outlooks on the US economy’s ability to thrive in a gloomy global economy, which means no change to Janet Yellen’s plan to be “patient” on raising interest rates.
All of this makes US stocks the best bet right now. In 2014, we often noted that European economic weakness meant that there was no place to put money except US stocks. If that was the case then, the troubles in Europe and Japan may once again make US stocks the prime destination for investment, especially as the dollar continues to gain against the euro, yen, and other currencies. And lest we forget, Russia is officially in a recession now as well.
S&P 2100 coming soon
If the rally in crude oil means it is finally finding support, the effect of the oil slide on stocks will abate and investors will once again be able to evaluate stocks on their own merits. If earnings outside of energy and finance meet or exceed expectations (which looks likely) and the Fed remains supportive, we expect to see the S&P make a solid run to 2100, perhaps even in the next week.
In Asia 10 of 11 markets closed higher and in Europe 8 out of 12 markets are trading lower this morning. Today’s economic calendar includes the MBA purchase applications, housing starts and earnings from UnitedHealth Group (NYSE: UNH), American Express (NYSE: AXP), eBay (NASDAQ: EBAY), U.S. Bancorp (NYSE: USB), Kinder Morgan (NYSE: KMI), and SanDisk (NASDAQ: SNDK).
Our view: Right now, the algos own the stock market and crude oil. Neither market can just sit at a price level for very long until another run of programmed orders hits. If I had to say which one has more algorithmic activity it would be crude oil, which is connected to many news headlines. Algorithms fall into roughly the same categories as human traders in the criteria they look at. Some look at price levels and are technical in focus; others look at the news, trending hashtags and keywords in headlines, and calculate the likely market reaction to such combinations of words. Our view is for more of the same type of choppy trade. We lean to selling the early rallies again and buying weakness.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 of 11 markets closed higher: Shanghai Comp. +4.74%, Hang Seng +1.68%, Nikkei -0.49%
- In Europe, 8 of 12 markets are trading lower at 6 AM CT: DAX -0.39%, FTSE +0.68%, MICEX +1.44%, GD.AT -2.09%
- Fair value: S&P -6.13, NASDAQ -6.85, Dow -67.30
- Total volume: 1.81mil ESH and 9.97k SPH traded
- Economic schedule: MBA purchase applications, housing starts, Redbook and earnings from UnitedHealth (NYSE: UNH), American Express (NYSE: AXP), eBay (NASDAQ: EBAY), U.S. Bancorp (NYSE: USB), Kinder Morgan (NYSE: KMI), and SanDisk (NASDAQ: SNDK).
[s_static_display]
No responses yet