ES 03-15 (5 Min)  1_8_2015

The S&P 500 futures (ESH15:CME), which had fallen 3.1% since making its Dec. 29 record close, broke a four-day losing streak while the Euro (EURUSD=X) currency fell to a nine-year low against the dollar. US stock markets rose sharply despite continued overseas growth risks as traders embraced the Federal Reserve’s minutes and the 1.5% rally in crude oil. The S&P broke its longest losing streak since December of 2013. The Dow Jones futures (YMH15:CBT) closed 217 points higher or 1.2%, to 17507.00 and the Nasdaq futures (NQH15:CME) closed up 49.25 points or up 1.3% to 4151.50.

Sentiment Shift or Profit Taking?

In the last week the big investment and mutual funds have been buying bonds and selling stocks, but one has to wonder how long that will go on. At some point the mutual funds will start putting money back to work in the stock market for several reasons: Low interest rates, low inflation and positive economic activity should make for strong corporate profits, and with Europe and Japan continuing their stimulus pushes, easy money looks like it could be around for a long time. After a big rally in the S&P futures and the cash close showing MOC buy $550mil, the S&P futures rallied on the close. Then on Globex around 7:30 CT the E-mini futures started going up again.

Parsing the Fed minutes

Many traders we spoke to said Wednesday’s Fed minutes sent a subtle message for the European Central Bank; what it thinks it should do without actually telling the ECB what to do. But what pushed the S&P futures up last night were comments by Chicago Federal Reserve Bank President Charles Evans saying that the Fed should remain cautious regarding interest-rate hikes as inflation is likely to remain below the central bank’s target for another three to four years. “I don’t think we should be in a hurry to raise rates,” Evans was quoted as saying. “Our inflation has been very low and I’d like to get that up.” Evans, who was speaking at a conference in Chicago, is currently a voting member on the policy-setting Federal Open Markets Committee.

In the minutes, the Fed referred to unnamed “market participants” and their belief that “the likelihood of further responses by policymakers abroad had increased.” This seems to be a subtle but clear reference to a bond-buying stimulus program like the one Mario Draghi has been urging on the ECB. The German central bank has so far resisted such a program, but the drop in Brent crude below $50/barrel and the rebellion by Greece against austerity economics may make it more likely that other Eurozone banks will override German hesitation. The minutes came out the same day the European consumer price index slipped to a deflationary -0.2% from December 2013, far from the 2% inflation target set by the ECB.

We want to remind you of some historical stats we put out earlier this week showing that price drops in crude tend to precede stock market booms and overall economic growth. A subtly coordinated effort by both the Fed and the ECB to stabilize prices and continue to provide low-interest financing for infrastructure investment would go along with that kind of long-term economic gain, since, to put it simply, cheap oil makes everything cheaper.

This news from the Fed and the prospect it raises of a cooperation between the US and Europe is a long-term good, but it’s probably Charles Evans’ remarks that made the ES rally so hard last night.

In Asia 10 of 11 markets closed higher and in Europe 11 out of 12 markets are trading higher this morning. Today’s economic calendar includes the chain store sales numbers, Challenger job-cut report, Gallup US job creation index, jobless claims, EIA natural gas report, 3- and 10-year note announcement, 30-year bond announcement, Boston Fed President Eric Rosengren speech in Madison, Wis., on policy normalization, consumer credit, Fed balance sheet, Minneapolis Fed President Narayana Kocherlakota speaks at town hall forum in Minneapolis, and earnings from Constellation Brands (NYSE: STZ), Family Dollar Stores (NYSE: FDO), Bed Bath & Beyond (NASDAQ: BBBY), and Apollo Education Group (NASDAQ: APOL).

S&P Down 4 Out of the Last 7

Our view: The E-mini S&P futures finally had its way on the upside but it didn’t go without excitement. Right around lunchtime S&P futures sold down to 2004.75 and the bears started licking their chops again, but a few minutes later the shorts were covering and the algos popped it back up to 2023.75. The premium levels were favoring index arbitrage buy programs, and with so many buy stops above, the algos ran one set after another for almost 20 handles. I am of mixed opinion. One side of me says that the S&P could easily get back to 2040 to 2050. But if crude oil continues lower and the weak expiration stats of Friday and Monday repeat themselves, we expect the rallies to fail. That said, we lean to selling the early rallies and buying weakness. We think there are more upside stops to run.

For the week:

The Dow is down 248.47 points, or 1.4 percent.
The S&P 500 is down 32.30 points, or 1.6 percent.
The Nasdaq composite is down 76.35 points, or 1.6 percent
For the year:
The Dow is down 238.55 points, or 1.3 percent.
The S&P 500 is down 33 points, or 1.6 percent.
The Nasdaq composite is down 85.59 points, or 1.8 percent.

January expiration study: https://mrtopstep.com/january-expiration-statistics/

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

  • In Asia 10 of 11 markets closed higher: Shanghai Comp. -2.39%, Hang Seng +0.65%, Nikkei +1.67%
  • In Europe 11 of 12 markets are trading higher: DAX +2.02%, FTSE +1.47%, MICEX +4.57%, GD.AT -1.01%
  • Fair value: S&P -6.68 , NASDAQ -6.72 , Dow -74.96
  • Total volume: 1.75mil ESH and 5.5k SPH traded
  • Economic schedule: Chain store sales numbers, Challenger job-cut report, Gallup US job creation index, jobless claims, EIA natural gas report, 3- and 10-year note announcement, 30-year bond announcement, Boston Fed President Eric Rosengren speech in Madison, Wis., on policy normalization, consumer credit, Fed balance sheet, Minneapolis Fed President Narayana Kocherlakota speaks at town hall forum in Minneapolis, and earnings from Constellation Brands (NYSE: STZ), Family Dollar Stores (NYSE: FDO), Bed Bath & Beyond (NASDAQ: BBBY), and Apollo Education Group (NASDAQ: APOL).

[s_static_display]

Categories:

Tags:

No responses yet

Leave a Reply