Monday’s lower open in the S&P futures and its 1984 Globex low was negated by the price of crude oil trading above $38.00. The ESH16:CME opened at the 1987.25 level, traded down to an early low of 1986.00 and then started pushing higher as the rally in the oil markets continued. The early trade in the index futures markets was another good example of traders trying to sell the rallies, putting in buy stops and getting knocked out as the crude oil futures (CLJ16:NYM) traded above $37.00. After a making a high at 2004.50 at 12:00 the futures lost momentum, ran sell stops and sell programs down to a new daily low at 1988.25, double bottomed and then rallied back to the 1999.00 area just before the 3:00 cash close. There was another pop up to 1902.00 before settling at 1998.75 on the 3:15 futures close, up 4.00 handles on the day, or up +0.22%.
Buy S&P / Sell FANG
While there seemed to be a constant flow of buying in the Dow and S&P futures, it was the Nasdaq futures that were weak all day. It looked like the there was some type of rotation, buy S&P sell Nasdaq, but it was the FANG stocks that kept a lid on upside. The four stocks that make up FANG have been significantly underperforming and all closed lower; Facebook (-2%), Amazon (-2%), Netflix (-6%), and Google (-2%) were among the day’s big losers as crude oil futures (CLK16:NYM) traded above $38.00 or up +5.0%. Despite the weakness the S&P continued its longest rally since October when oil prices pushed energy stocks up. The S&Ps bounce off the lows that started in the middle of February has the (ESH16:CME) rallying to near the highest levels of the year.
There are so many conflicting stories out there. Yesterday there was one story suggesting the markets are setting up for another ‘credit crisis’ sell off and on the other side you have the story about how Goldman Sachs Sees Best Time in Two Decades to Buy S&P 500 Calls http://www.bloomberg.com/news/articles/2016-03-07/goldman-sachs-sees-best-time-in-two-decades-to-buy-s-p-500-calls. Both ideas seem somewhat puzzling, and one thing I know is that they both cannot be correct, and I’m not certain that either is correct. With the S&P 500 up 200 handles from the lows, and only about 7% from all time highs that created a strong resistance level last year around 2100, it seems somewhat adventurous to suggest the best call buying opportunity in two decades. On the other hand, this market has shown some impressive resilience, and without a new catalyst we don’t see a 20% decline coming this year.
Overnight, very weak trade balance figures out of China caused a flush of equity markets early in the Asian session helping push the S&P futures down to 1980.75, nearly 20 handles lower from the globex open. However the Asian markets rallied in their session close and this morning the S&P has fought back to 1994.00, up 13.25 handles from the low and within 5 handles of the globex open. At this point it becomes even clearer that at the moment the equity markets are in buy the dip mode as many of the index markets, that had seemed so overbought to many commentators, could only manage a small pullback last night and rallied off those lows.
In Asia, 7 out of 11 markets closed lower (Shanghai Comp +0.14%), and In Europe 7 out of 12 markets are trading lower this morning (DAX -1.15% ). Today’s economic calendar starts with the NFIB Small Business Optimism Index, Redbook, 4-Week Bill Auction, and a 3-Yr Note Auction.
3 Week Rally Losing Its Luster
Our View: It feels like the ESH is tired but crude oil won’t stop going up. That said the S&P futures are overbought and ‘struggling’ to overcome the ‘big figure’ at 2000.00. Last night, and into the early morning hours, they traded down to the 1981.00 area and are pulling back up to 1987 as I write this. Is the 3 week rally losing its luster? It’s hard to say, but all the selling in the FANG stocks is again weighing on the S&P. At the end of the day crude oil is still the main driver, but when big name market leading stocks like FB, Amazon, Netflix and Google are all being sold, it’s hard to have a forward looking view. Our view is to buy the early weakness and sell rallies.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets closed lower: Shanghai Comp +0.14%, Hang Seng -0.73%, Nikkei -0.76%
- In Europe 7 out of 12 markets are trading lower: CAC -1.37%, DAX -1.15%, FTSE -0.72% at 5:30am CT
- Fair Value: S&P -1.28, NASDAQ -1.47, Dow -11.54.
- Total Volume: 1.6mil ESH and 6.5k SPH
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