Market Review
S&P 500 Futures Recap – Trade Date June 16, 2021
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Chart of the Day
Lordstown, DraftKings fit pattern among ‘De-SPAC’ stocks
Lordstown Motors Corp. and DraftKings Inc. have a couple of things in common. Both businesses were taken public by special purpose acquisition companies, or SPACs, and both suffered stock-market setbacks this week. The latter reflects a trend that’s evident from the De-SPAC Index, consisting of companies whose deals were completed during the past 12 months. The index fell 27% through Tuesday from a high in February, according to data compiled by Bloomberg. Blank-check companies that have yet to make or complete deals held up better, as the IPOX SPAC Index dropped 23% from its February peak.
Our View
Hawkish Fed Sends The S&P Lower
It’s almost too unbelievable, the S&P 500 futures (ESU21:CME) has sold off after the open 15 out of the last 17 sessions. Generally, these types of patterns do not last long. This one has been going on for 3 weeks.
Yesterday, the ESU traded 4239.25 on the 9:30 ET futures open, up ticked to the high of the day at 4241.50, and then started to reverse. At 2:00 ET the ESU traded down to 4190.25, 51.25 points off its high. After the drop, the ES started to short cover, reversed down to a higher low of 4191.00 at 2:50, and then several buy programs hit that pushed the ES all the way back up to 4228.00 just before 3:30. It was a day of big stop runs but it was long overdue.
On the 3:50 cash imbalance, the ES traded 4222.50 as the MIM showed $349 million to sell then increased to over $950 million to sell. On the 4:00 cash close, the ES traded 4215, settled at 4213.25 on the 4:15 futures close (down 24.25 points or -0.57%), and traded down to 4201.50 in the aftermarket. In the end, it was a big day of ‘selling the rips and buying the dips.’ In terms of the ES’s overall tone, the early weakness knee-capped the NQ and after the early pull back the Fed headlines sent the index markets down quickly. In terms of the day’s overall trade, volume was up with 123,000 contracts traded on Globex and 1.23 million traded on the day session for a total of 1.35 million.
Our view: I would be a fool to say that one day we could not wake up and find that the S&P is ‘limit down’ and ‘limit down’ again. The PitBull said there has been a 10% correction every year for the last six years. Right now it’s easy pickings, the Fed zero rates and endless stimulus money pouring in and the ‘no place to go but stocks’ mentality continues to drive the markets higher. That’s said, every rally tops out at some point but in the case of the S&P, it’s just for how long. It took a lot of attempts to take out the old 4238.75 high and based on previous new highs, there should be a lull/pullback. It’s how the S&P rebuilds its buying power. Our lean, the ES quickly sold off after yesterday’s ‘reopen’ down to 4201.50. I think odds favor lower prices but I also think we see a big bounce, especially if the ES is weak late in the day.
As we all know, there’s no crystal ball when it comes to trading stocks, options or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk free for 30 days.
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.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
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