IMF ‘We would prefer certainty over agony’
It was a US banking holiday, but there was no holiday in Lima, Peru where the IFM was holding its annual meeting. The message from our banking partners; raise rates soon. When you look at this correctly there is always going to be some headline, some news event, and after the meltdowns in Greece and China, the US is now in the hot seat. The question of raising interest rates is no longer if, it’s when.
The S&P 500 futures made a new high at 2012.50 on Globex Sunday night as the Asian and European markets rallied. Around 5:00 am CT the ESZ15 (S&P emini futures) sold off as some of the European broses pulled back. The ESZ15:CME opened at 2007.00, up +.50 handles, then rallied a little and sold off a little. Basically that was the theme of the day’s overall trade. In the last four months, the S&P has pushed back from Greece’s credit problems and China’s weakened economy, has taken the lead during the global rally, and is now facing some of its own problems…the third quarter earnings and the constant drumbeat of higher interest rates. Yesterday, the IMF’s Lagarde blasted the US Congress for blocking reforms saying “they jeopardize IMF’s credibility” and get on with interest rate increases. After all the headlines, the ESZ sold off as crude oil (CLX15:NYM) sold from the $50.00 level down to $47.55, down over -1.5%. The ESZ traded down to the 2002.25 level and rallied back above 2010. It was a very slow, holiday trading day. After the small rally the ESZ15 pulled back to the 2005.50 to 2007.00 level where it stayed until late in the day when the MrTopStep imbalance meter (MiM) started to show small to buy and the futures rallied a few points. At 2:45 CT the : NYSE Closing Imbalance showed a NET Buy of $593 million and the S&P futures traded up to 2011.50 in the final minute of the day.
There is a low level of economic reports out this week but a high level of earning reports and the October expiration. So far October has been a ‘bear killer’ but it’s a little early to be overly bullish. What I can say is, the overall tone has changed, but so has the big downside volume.
In the end, with the banks closed, the holiday not only put the breaks on the days overall trade, but the days volume also. When you take out the 137k ESZ15s traded on Globex before the 8:30 open, from the days 780,000 contacts, total volume was only 643k, and when you subtract (let’s be nice) 50% for program trading total, outright volume was only 321k. That is close to some of the lowest volume days of the year. Moral of the story, it makes it easy to push the index markets higher when volumes are so low. Perhaps that will change today.
In Asia, 8 out of 11 markets closed lower (Shanghai Composite +0.17%), and in Europe 12 out of 12 markets are trading lower this morning (DAX -1.23). Today’s economic releases start with the NFIB Small Business Optimism Index, St Louis Federal Reserve Bank President James Bullard speech on the economy and monetary policy, to NABE, in Washington, Redbook, 3 and 6 Month T-bill Auctions, and Treasury Budget.
Our View: Yesterday’s ESZ volume was the lowest volume in many weeks if not the last few months. The ESZ is now up as much as 150 handles from its Aug. 24 1831 low, and up as much as 180 Handles from is Sept. 30th 1861 low. The statistics for the October S&P cash study for the October expiration are bullish every day this week, but today, our concern is how much the ESZ15 futures have rallied. While I am bullish, that doesn’t come without some caution. There is a low level of economic reports out this week, but a high level of earning reports and the October expiration. So far October has been a ‘bear killer’, but there are still 14 trading days left in the month. The overall tone has changed and the big downside volume has disappeared. Our view, sell the early rally and buy weakness. Stops in the ESZ, below 2001 and above 2012.50, pick your poison.
As always; please use protective buy and sell stops when trading futures and options.
The Tuesday before the October experation has been up 14 / down 17 of the last 31 (see the full study here…).
- In Asia 8 out of 11 markets closed lower : Shanghai Comp. +0.17%, Hang Seng -0.57%, Nikkei -1.11%
- In Europe 12 out of 12 markets are trading lower : CAC -1.31%, DAX -1.23%, FTSE -0.90% at 7:00 am CT
- Fair Value: S&P -7.94 , NASDAQ -10.93 , Dow -97.23
- Total Volume: 792k ESZ and 2.3k SPZ
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