S&P 500 Futures: Bulls Manage a 120 Handle Rally For a Higher Weekly Close
After an 83.75-handle overnight range, the S&P 500 futures opened Friday’s regular session at 3806.50, traded a morning high of 3808.00, and then the bottom fell out as the index would sell heavy down to 3728.50, the low of the day just before 10:30, a 79.50-handle drop in two hours. From there, buyers would come in and the rally would be more impressive as the S&Ps would storm higher through the remainder of the morning, noon hour, and relentlessly throughout the afternoon, finally trading a daily high of 3850.00 in the final hour, sealing a 121.50-handle rally in less than 4.5 hours before settling the day at 3839.00, up 66.75 handles on impressive volume of 2.8 million contracts. In terms of price action, it was all about selling the open and reversing at 10:30, holding to cover during the final hour.
In the Tradechat Room
MiM & SpyGate
Friday’s v-bottom created a very bullish afternoon. Our MIM was a strong buy out of the chute and the reveal was a solid 2.7B with decent lean. The 15:50 MOC reveal candle put in the high of the day on the release with the dquotes at 15:55, gobbling up 2/3rds of the imbalance before the close and retracing the 15:50 candle.
The US continues to look good, even better than last week. There was some fear about upticks in a dozen states but those seem to be subsiding.
There was also fear of upticks in the Daily test data indicating perhaps more daily cases coming but that did not materialize yet, either.
The number of daily vaccines delivered in the US continues to trend above 2M daily, that is a good number as vaccines begin to flow. We should see another doubling in the next 30 days.
Wear your masks! Stay at least 10 feet behind someone wearing a mask! (Particularly in a checkout line) Stay home! Take your Vitamin D!
Chart of the Day
Why Is The Stock Market So Volatile?
There are several reasons why the markets are so volatile. In today’s Opening Print we are going to look at some of the causes and their effects. Before we begin, I want to remind everyone that the S&P 500, the broader market index, is up over 600% from its March 2009 low and is up 2.29% YTD . The record-breaking, overextended bull market has started to show some cracks. The question is, are the cracks big enough to start a real sell-off or is it going to be business as usual, sell-off, make a low and then make new highs?
Why the Markets are so Volatile:
The economy. When the economy is experiencing periods of growth and contractions, lower revenues for companies with fixed overheads tend to highlight the reduction in corporate earnings. Despite the economy opening up, job growth remains low.
The threat of higher interest rates. As rates rise businesses are less likely to borrow or refinance existing debt because it’s more expensive.
The sharp rise in energy prices. People forget that crude oil dropped down to the $19.00 a barrel area on April 20th, 2020 and traded up to $67.84 on Globex last night. Gas prices in Florida got down to $1.50 a gallon and are now almost $3.50 a gallon and in some areas, gas prices hit a 19-month high. Last Thursday, the Organization of the Petroleum Exporting Countries (OPEC) finished a meeting that decided large cuts to oil production in 2020 will generally be extended into 2021. Crude oil is up 73% in 2021.
Higher commodity prices. This is not usually where people look for inflation but beans have gone from $9.00’s last year to $14.50 as of Friday’s close. Corn closed at $3.81 on September 28 and is now trading above $5.50. China is continuing to buy when US stockpiles are at record lows. The jump in prices has been felt in the grocery stores for the last few months and will continue to rise.
Coronavirus cases in the U.S. have hit 29.69 million, with deaths above 537,000. U.S. coronavirus vaccinations hit 2.9 million on Saturday. On Sunday, vaccinations reached 2.4 million for the day, which had been the old record. The seven-day average is now nearly 2.2 million/day. While the US economy is improving, there is still a lot of work to do and the new covid variants and the reliability of the vaccines are still in question.
The Biden $1.9 trillion Covid19 Stimulus plan passed the Senate on Saturday. The House plans to vote Tuesday on the Senate version of the Biden stimulus plan. It’ll then go to President Joe Biden to sign. The concern is that the $1.9 trillion plan could overshoot economic output and that the plan needs to be more tailored to the needs of the economy and targets more thoughtfully. Many prominent budget analysts and well-known economists have concerns that the package is too big. According to a Wall Street Journal survey, over 50% of the people surveyed think the package should be less than $1 trillion.
Our view, I am sure there are more reasons why the markets are going to stay volatile. Last night, the ES traded up to 3866.25 on the Globex open and dropped 25 handles. The NQ made a high at 12,761.25 and sold off down to 12,583.00. I guess you should expect that after Friday’s big rally. 100+ point drops and rallies have become commonplace. Our lean, I think initially you play off the Globex highs and lows. Sell the big rips and buy the dips. My guess is we are going back up but you have to beware of the landmines.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
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