The day before a holiday, and the day after a holiday, are always considered slow trading days, but the current low volume grind has little to do with the holidays and more about the public’s faith that the S&P keeps going up as it has, and some think a big reversal is close. As the markets approach the final trading day of March, and the end of the first quarter, stocks have recouped most of the losses they accrued in the first six weeks of the year.
For many years it has been thought that the mutual funds markup and markdown stocks going into the end of the quarter and the first trading days of the new quarter. According to the Stock Trader’s Almanac the week after Easter has the second worst post holiday records. The last trading day of the first quarter has the Dow Jones down 16 of the last 27. In earlier Opening Prints we warned traders that the S&P 500 futures (ESM16:CME) would continue to rally during the shortened holiday week and start to sell off going into the final trading days of the quarter. The main question on traders minds right now is, will the mutual funds turn sellers going into the final trading days of March? We think they will, but we also have to look at what happens in the first trading days of the new quarter, which shows the Dow up 16 last 21 occasions. While the volatility in the index markets has leveled off, with the VIX trading around the $15.00 area, the volatility level in crude oil remains historically high. After oil fell four days in a row, or 10% from its March highs, oil traders have started to question whether an oil production freeze is possible? We have said many time that with all the wars going on in the Middle East it will be difficult, at best, on striking any type of oil production freeze.
READ: Why the Crude Oil Turmoil Affects the Entire Energy Sector
Yesterday the S&P 500 futures traded in its lowest volume session of the year with fewer than one million mini’s traded. The index is still acting top heavy but seems unable to catch a solid move lower. Most of the recent sessions have experience a doji type price action, trading on both sides of the open, and closing near the open, but it does seem that the ESM16 is pulling away from 2050 and will test the 2000 area. Meanwhile, crude oil futures seem poised to test last week’s $38.33 level, and a break of that could in turn see the $36.00 price traded.
Overnight the equity index futures around the world experienced modest weakness, and the ESM briefly traded below Monday’s low, reaching 1920.75. The index is making a series of lower highs and trying to make lower lows. With the quarter end trade this week and Q2 beginning Friday, along with NFP, on top of three SPX expirations this week (the new Wednesday expiration, the weekly and the quarterly), there just may be enough energy to come into the markets later this week to push it to new levels.
In Asia, 6 out of 11 markets closed lower (Shanghai Comp -1.28%), and In Europe, 9 out of 12 markets are trading lower this morning (DAX -0.18%). Today’s economic calendar includes John Williams Speaking, Redbook, S&P Case-Shiller HPI, Consumer Confidence, State Street Investor Confidence Index, Janet Yellen Speaks, 4-Week Bill Auction, 52-Week Bill Auction, Rob Kaplan Speaks at 1pm, 5-Yr Note Auction, and Rob Kaplan Speaks at 4pm.
Is it Time to Start Walking Away?
Our View: It’s 7:30 am CT and globex volume is 180K+, more than double from yesterday. The ESM pushed down to yesterday’s low and have tried to hold the 2020.75 low made on Globex, and is currently trading at 2022.50, down 5.50 handles. We are seeing a market trying to print lower highs which means we have to look for a lower low with an initial test of the 2012.25 price from last week. Our call is to sell the early rallies, 10 handles above the globex low is an area of congestion and what should be back and fill that will be critical to control. We look to sell that 2030-2032 area and lean to selling rallies rather than buying dips for now.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed lower: Shanghai Comp -1.28%, Hang Seng +0.10%, Nikkei -0.18%
- In Europe 9 out of 12 markets are trading lower: CAC +0.35%, DAX -0.18%, FTSE -0.16% at 5:30am CT
- Fair Value: S&P -8.83, NASDAQ -10.67, Dow -102.62
- Total Volume: .800 mil ESM and 2.9k SPM traded
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