Yesterday we noted that while we had expected a bounce at some point this week, once the S&P traded 50 handles from Monday’s low on Wednesday, up above the 1875 area, it would be greedy to expect any more, given this year’s volatility. With Japan coming back online at the end of the week, and China on Monday, we expected to see the Pit Bull’s Thursday / Friday low; and the equity index markets wasted no time following through from Wednesday’s reversal action, as the futures sank down to a new 52-week low overnight at the 1802 area.
While price did take out January’s low by a few ticks, selling dried up there, and buyers swarmed in, carrying the ESH16 higher into the cash open. I noted going into the 8:30 CT bell that with the globex volume at 600k+, that traders had already made up their minds, and that there was potential for some upside buy stops to be run. After the 1817.25 open, the index traded up to 1833.5 before buyers lost fuel; and a steady flow of selling kept the markets going lower into midday, finding a low at the 1805 area.
Brian Shepherd (SHPS) from the floor desk noticed that a seller was offering the big S&P contract in large size as the futures were making a new low. Once this seller left the pit, the futures began to rally, just in time for the news release that OPEC was strongly considering production cuts. On the news, the S&P ran buy stops up to 1834 as crude oil rallied more than a $1 from $26.05 to $27.33 and closed at $27.31, up $1.09, or +4.16%. However, it seems improbable that OPEC members would come to such an abrupt agreement. What seems more likely is that member nations are willing to say anything in an attempt to create a bid in that energy market.
Late in the day, the MIM came online showing over $500 million to buy; but its size paired off into the official number as the official MOC was $150 to buy. At the end of the day, the ESH16 closed the day at 1825.50, down 16.75 handles or -0.90%, while crude oil futures (CLH6:NYM) closed at $27.31, near the highs.
Heading into Friday’s trade are some key retail numbers, as the weak Japanese markets open back up while China remains closed. The Friday trend has been weak as of late with the indexes closing down on 5 of the last 7 occasions. Given the 3-day weekend, with China opening back up on Monday, and the mid-month rebalance, anything could happen. As long as yesterday’s low holds, we could see a target to 1850 during the shortened OPEX week; however, if Friday trades weak early on, then the selling could last all day, running stops well under the 1800 level.
In Asia 9 out of lower 10 markets closed lower (Nikkei -4.84%), and In Europe 12 out of 12 markets are trading higher this morning (DAX +1.82% at 6:00 am CT). Today’s economic calendar includes Retail Sales, Import and Export Prices, Rob Kaplan Speaks, Business Inventories, Consumer Sentiment, William Dudley Speaks, Baker-Hughes Rig Count, and earnings from Red Robin Gourmet Burgers (RRGB).
CME Closed Monday
Our View: Overnight, CLH traded up to 27.76 and the ESH is trading 1844.50, up 20 handles at 6:15 am after making a high of 1847.50. Even for the most battle tested traders, the beginning of 2016 or the first six weeks of the year has been wicked, and despite OPEC agreeing to make some production cuts, it seems unlikely the global stock markets will shake off all of its problems. Crude oil is a key component but so is the global bank crisis. Many fear the US is not only heading into a recession but that some of the same problems that caused the credit crisis are back. As I have tried to say all year; I am taking this one day at a time. As traders we are not here to fight city hall. If the S&P wants to go up or down we want to go for the ride. Can the ESH16 rally? Sure it can! Will the rally last? I do not think so, it’s just too early in the year and there are just too many moving parts.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 10 markets closed lower : Shanghai Comp. CLOSED, Hang Seng -1.22%, Nikkei -4.84%
- In Europe 12 of 12 markets are trading higher : CAC +1.60%, DAX +1.82%, FTSE +1.88%
% at 6:00am CT - Fair Value: S&P -9.45, NASDAQ -4.60, Dow -50.28
- Total Volume: 3.2mil ESH and 15k SPH
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