The S&P 500 (ESM15:CME) and crude oil futures (CLJ15:NYM) fell as the US dollar surged yesterday. Despite a drop in the S&P futures during the day session, overall trade and volume were slightly higher than Monday’s record low volume. Oil traders are waiting for the weekly EIA Petroleum Status Report, which most traders expect will show another increase in oil inventories. The American Petroleum Institute said late Tuesday that its own data for the same week showed a 4.8 million-barrel gain in crude oil supplies. No news is good news when it comes to crude oil.
After making its contract high in early March, the ESM15 sold off and then recovered. It has made three attempts to take out the highs, but each attempt has failed. The latest retest has led to a 28-handle pullback. Most traders we have spoken to were confident that the S&P would take out the highs and continue higher, but like always, the S&P never does what everyone wants it to do, when they want it to. Is the selloff something people should worry about? No, we do not think so, but if the selling persists into the end of the quarter it could end up a problem.
The Dow futures (YMM15:CBT) closed 1.5% off its all-time high at 18188 on March 2. The S&P futures (ESM15:CME) closed 1.2% off its all-time high 2109.75 on Feb. 25, still up 1.6% year to date. The Russell 2000 futures closed down 1.2%, still up 4.9% year to date.
S&P down 3 out of the last 4
It’s going to be important to pay attention to the closing imbalances over the next 5 trading days, into the end of the first quarter rebalance. The last two days have seen net sell imbalances on the 2:45 CT cash close and on each day the futures closed weak. We also want to keep an eye on T+3 where the big mutual and investment firms can can buy or sell a stock or bond and denote that the settlement occurs on a transaction date plus one day, plus two days, and plus three days out. This is where the big funds get to sell the losing positions and mark up the winning positions also. It’s an important time for traders because the big institutional flow controls the direction. While we are not saying the selling related to T+3 has started, it sure has the look and the feel of it. Years ago it was T+5, but it was narrowed down to 3 days because of the big advantage the large funds had over the public. Below is a link to Investopedia that is titled What do T+1, T+2 and T+3 mean? http://www.investopedia.com/ask/answers/03/061303.asp It’s a very worthwhile read.
MrTopStep is not 100% sure that the current selling is part of the end-of-quarter rebalance but it sure looks that way. If it is, it will be hard to fight. While we see the weakness, we also see how low the volumes are, and that usually means a reversal is just around the corner. Run the sell stops yesterday, run the buy stops today or later in the week. The bull may be resting, but he’s not done.
In Asia 6 out of 11 markets closed higher and at 6:00 CT in Europe 9 of 12 markets are trading modestly lower this morning. Today’s economic calendar: Charles Evans from the Fed speaks, MBA mortgage applications, durable goods orders, EIA petroleum status report and 5-year note auction.
Our View: When I did the call yesterday I was just going to just say “sell the rallies,” but I threw in “and buy weakness.” Let’s face it, the S&P futures acted badly yesterday and closed on the lows of the day. In most circumstances that’s not a good sign as you go into the end of a month or end of a quarter. Our view is to remain cautious. As we have said many times, we are bullish, just not foolish. We think we could see some type of pop back up, but we lean to selling the rallies overall.
“S&P Down Side Chop Shop”
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 -0.83%, Hang Seng +0.53%, Nikkei +0.17%
- In Europe 9 of 12 markets are trading lower: DAX -0.55%, FTSE -0.13%, MICEX -0.92%, Athens GD.AT +3.66%
- Fair value: S&P -7.91 , Nasdaq -7.98 , Dow -84.99
- Total volume: 1.19mil ESM and 3.5k SPH traded
- Economic schedule: Charles Evans from the Fed speaks, MBA mortgage applications, durable goods orders, EIA petroleum status report and 5-year note auction.
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