End of the Year Tax Sell Puts a ‘Kibosh’ on the S&P 500

Commentary, News, Our View, S&P 500, Stocks, The Opening Print, Video

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The S&P futures (ESH16:CME) didn’t close the year at 2200.00, or 2150.00, or even 2000.00. At the end of a year of going nowhere, the S&P futures official settlement came in at 2035.40. As the 7 year bull market starts to wear out there are some big concerns, the most significant ones being the Federal Reserve’s $4.5 trillion dollar balance sheet after printing money for 7 years, and the prospects of four interest rate hikes in 2016.

Santa did show up after Christmas, but his sleigh came crashing down in the final two trading days of the year. Be it a lack of liquidity, or end of the year tax selling, the markets reacted in kind to the downside leaving the S&P futures down under 1% on the year. Many of the traders we spoke to said it was a trying year of ups and downs and that they hoped for some better markets in 2016.

World Markets Sell Off After Chinese Manufacturing Miss

On last night’s Globex open the S&P futures traded nearly 8 handles above Friday’s close, making a high at the 2043.50 area, before the Chinese Manufacturing PMI was released to the negative side. From its highs, the ESH16 sold off as much as 48.50 handles into this mornings low, just before 6:30am CT, leaving the S&P futures down 2%. In Asia and Europe the damage was worse as the Shanghai markets had to be halted as the composite was trading as much as 7% lower. In Europe, midway through the session, the German DAX was trading down by more than 4%.

PitBull’s Pre Opex Rule

There is plenty to keep the U.S. markets alive this week, aside from global concerns, as the week is capped by the December Non-Farm Payroll being released on Friday, and other noticeable reports earlier in the week. Of particular note, it’s the time of month again to start looking for the Thursday/Friday low the week prior to options expiration. Interestingly, 8 of 12 months last year the PitBull’s rule worked, but failed to do so in January.

In Asia, 10 out of 11 markets closed sharply lower (Shanghai Comp -6.86%), and in Europe 12 out of 12 markets are trading lower (DAX -4.26%). The first trading week of the year has a busy economic schedule. The week includes a total of 23 separate economic releases, 10 T-bill or T-bond auctions or announcements, the FOMC Minutes, and the December jobs report. Today’s trade starts out the week with PMI Manufacturing Index, ISM Mfg Index, Construction Spending, 6 Month T-bill Auction, and the Gallup US Consumers Spending Measure.

Big Week For Volatility

Our View: Very ugly stuff overnight but I am not surprised based on how the S&P was acting on Thursday’s close. Santa made a brief appearance after Christmas, but it’s been all downhill ever since. It’s a serious decline for the first day of the year and may set the tone over the next few days. With China and Europe down sharply, one has to wonder if the mutual funds will put any of the money they have been selling over the last few days back to work? As I said on Thursday’s video, I think 2016 is going to be a choppy, volatile year. There was potential for the S&P to sell off early in the year. I put out a range of 2017.00 to 2250.00, and things seem to be starting the year out that way. Our view is to go slow. I want to get a feel for the overall price action but, my guess is the ESH rallies, just not sure it holds.

‘S&P 500 Futures Year End Settle 2035.40’

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

 

    • In Asia 10 out of 11 markets closed sharply lower: Shanghai Comp -6.86%, Hang Seng -2.68%, Nikkei -3.06%
    • In Europe 12 of 12 markets are trading sharply lower : CAC -2.84%, DAX -4.26%, FTSE -2.41% at 5:00am CT
    • Fair Value: S&P -7.31, NASDAQ -6.33, Dow -88.56
    • Total Volume: 1.0mil ESH and 2.2k SPH
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Danny Riley (3258 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


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