Crude Oil Down Nearly 5% – Takes the S&P 500 for a Ride

“Falling Oil Prices” (Photo Credit: futuresmag.com)

Yesterday, after the ESZ15:CME opened and rallied up to 2103.25, I came out saying I thought the S&P futures were going to see a down day. Why did I think that? It’s simple, the rally that took out the upside buy stops on Tuesday afternoon, and the further buying during the Globex session, turned everyone that was bearish long into the rally. I have often sung the same song, ‘run the buy stops – run the sell stops.’ The market is most always a two sided environment, and lately the algo’s have been feasting on both sides.

I said that the highs would not hold, what I didn’t expect was a 28+ handle meltdown. Sure, crude oil (CLF15:NYM) selling below $40 hurt the S&P, and certainly the late day breaking news of a mass shooting in San Bernardino didn’t help equities when they were trying to rally off the lows. However, at the same time, we have seen the index futures ignore moves in crude oil and news related events before, but yesterday they wanted a reason to sell, so they sold.

S&P 2100

What yesterday’s selling amounts to, is what I have been pointing out all year, and again as of late. The big, round 2100 pivot in the S&P futures and cash. Throughout the year the futures have struggled to get over this level. The approach is usually on smaller volume, and once over the level, volume is minimal. The S&P 500 futures have seemed to be afraid to hold and close above 2100. It’s telling that 15 of the last 23 sessions have traded within 10 handles of 2100 on either side, but only two sessions have actually closed at or above this level. Buyers have enjoyed dips, but once at 2100 there seems to be a psychological fear zone that keeps buyers less convicted, and seemingly gives bears a license to short. Yesterday we saw a rise above 2100, and then once it failed the day was over, sellers had control.

I know this sounds redundant, but until bulls can control this level, the hopes for a year end rally seem challenging. Last week the Bank Of America/Merrill Lynch Hedge Fund Monitor reported that funds were short from 2050 – 2100. We still maintain there are stops above, but until the S&P holds above 2100, there is no reason for shorts to panic.

2094 & The Globex Rally

After closing in the lower half of the range yesterday, the S&P 500 futures opened last night and traded mostly sideways early in the session, and through the Asian close. Shortly after the European open a rally took place making a high of 2095.25 around 4:30 CT, 20 handles from the prior session’s high, and then backed off to 2091.50 shortly after 6:00 am, still up 10 handles on the session.

Since the week of Thanksgiving, the 2092.50 – 2095.00 area has been a pivotal marker on intraday charts, and has marked the high area in nearly all the last few sessions. This mornings rally reached the 2095 area and has since begun to fail back to 2090. Meanwhile, the 2078.50 – 2082.25 area has offered consistent support, thus leaving the ESZ in less than a 20 handle primary range the last two weeks. Something has to give, and as the index futures respond to tomorrow’s NFP release, and begins to anticipate the mid month FOMC meeting, we are expecting that this range will have to break.

Todays ESZ Levels:

In Asia 8 out of 11 markets closed lower (Shanghai Comp +1.35%), and in Europe 9 out of 12 markets are trading higher (DAX +0.90%). Today’s economic calendar includes Chain Store Sales, Challenger Job-Cut Report, Jobless Claims, Gallup Good Jobs Rate, Loretta Mester Speaks, PMI Services Index, Bloomberg Consumer Comfort Index, Janet Yellen Speaks, Factory Orders, ISM Non-Mfg Index, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 52-Week Bill Announcement, 3-Yr Note Announcement, 10-Yr Note Announcement, 30-Yr Bond Announcement, Stanley Fischer Speaks, Fed Balance Sheet, and Money Supply.

Our View: It’s now 7:00 am CT as the ESZ failed at the 2095.00 level and traded more than 10 handles lower below 2085.00 in the last hour. Our overall view is still higher, but rallies seem to be suspect right now. With the weekly jobless claims coming up, and then NFP tomorrow, the tape may be hard to read due to whatever book squaring will occur before the employment number. Today may be messy, and after Wednesday’s outside day, Thursday could trade inside. We lean to fading early moves looking to lean on yesterday’s ranges; buying near yesterday’s low, or selling near yesterday’s high.

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

• In Asia 8 out of 11 markets closed lower : Shanghai Comp. +1.35%, Hang Seng -0.28%, Nikkei +0.01%
• In Europe 9 of 12 markets are trading higher : CAC +1.30%, DAX +0.90%, FTSE +0.33% at 6:00am CT
• Fair Value: S&P -1.36 , NASDAQ -0.73 , Dow -12.73
• Total Volume: 1.7mil ESZ and k5.7 SPZ

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