There was a mindset going into Friday’s trade that, after China was closed on Thursday and Friday for Victory Day, Sunday night’s open could see another global “let-down.” That didn’t happen in the S&P futures Friday, nor did it happen Sunday night when China opened. There is a lot of talk out there that the the China weakness is running its course, and that when the increased volatility ends, the S&P futures are going back to 2150 or higher.
Monday’s shortened holiday Globex trade was going up, and when the futures started taking out the 1944.50 high on Sunday night, the US bonds started to fall and the S&P futures (CME:ESU15) rallied all the way up to 1961 this morning at 5:50 am CT. That’s 53 handles higher from Friday’s 1908.00 low. Clearly there was too much emphasis on being short the futures over the weekend. Volatile Chinese stocks have been the key to increased movement in global stock markets, but many traders are starting to think that this will pass. Goldman Sachs says the Chinese government has spent 1.5 trillion yuan, or $236 billion, in the last 3 months to rescue its stock market and prevent it from causing a global meltdown. The Shanghai composite has dropped 41% since its June high and erased $5 trillion in value from the mainland bourses. They say the Chinese government was prepared to spend more than $400 billion to purchase stocks in bands selling by major shareholders. We are not sure that we are at that point yet, but soon the S&P’s will start going back up.
It’s been a long few months for the S&P and it’s not over. There are still three weeks left in September, and we still have to deal with the spooky month of October. That said, the S&P seems to be pushing back from some of the global weakness, as gold eases back toward a 2 1/2 week low, and oil bouncing back up after Monday’s selloff.
There are a lot of moving parts right now, and while we do see light at the end of the tunnel, there are still a lot of negatives floating around out there. Additionally, there are a lot of historical seasonalities that take place in September and October that traders should not overlook. While we get the feeling that things are starting to level off, we can’t say the increased volatility will just go away. it just doesn’t work like that. While October is known for its crashes, it’s also known as the bear-killer. In the next few weeks we are going to start researching some type of long options play for a year and push back up.
On Monday, 9 out of of 11 Asian markets closed lower, and in Europe 8 out 12 of markets traded modestly higher. This morning 9 out of 11 markets are trading higher (Shanghai Composite +2.92%) and in Europe 12 out of 12 markets are trading higher (DAX +2.20%). Today’s economic calendar includes NFIB Small Business Optimism Index, Gallup US Consumer Spending Measure, 3 and 6 Month T- Bill Auctions and Consumer Credit.
SHORT WEEKS CAN BE LONG
Our View: The ESU that rallied going into the close on Friday traded all the way up to 1944.50 yesterday, and shot up to 1961.00 on Globex this morning. Last week, the S&P made a high of 1973.50, in the week of the crash it traded up to 1993. I think there is a lot of resistance above. I don’t think this is over. Can the China weakness be overcome? Yes, it can, and will. Will the Fed raise rates in September? I don’t believe so. Will the S&P go back to 2150 before the end of the year? I believe so. Our view? Sell the early rallies, and by weakness, keeping in mind how much the S&P has rallied from last week’s 1898.75 low.
And always remember to use stops when trading futures and options…
- In Asia 9 out of 11 markets closed higher : Shanghai Comp. +2.92%, Hang Seng +3.28%, Nikkei -2.43%
- In Europe 12 out of 12 markets are trading higher (5:30 am CT) : CAC +1.86%, DAX +2.20%, FTSE 1.77% at 5:30 am CT
- Fair Value: S&P -1.54, NASDAQ -1.05, Dow -10.08
- Total Volume: 2.1 mil ESU and 3.2k SPU traded
- Economic calendar : Today’s economic calendar NFIB Small Business Optimism Index, Gallup US Consumer Spending Measure, 3 and 6 Month T- Bill Auctions and Consumer Credit.
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