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Chart of the Day
Fed Meetings Bring Out The Worst In The The S&P 500
It was only four sessions ago that the S&P 500 futures were making new all-time contract highs at 4258.50 on the September contract (ESU21:CME). Since Tuesday, the ES has fallen 116 points with the selling eclipsing late Friday and after the close. I know I thought the pull back would be the normal 40 to 50 points followed by some back and fill and then it would start trading up again. However, after the fed headlines signaling discussions of moving towards tapering its bond-buying program, the ES started to reverse. This set the tone for the historically weak June quadruple options expiration. The PitBull told me he did his charts and the markets are weak. I can’t disagree but I am always an optimist at heart and think a bounce is not far off.
I am not going to do a big blow by blow of Friday’s trade. Plain and simple, the markets started out weak and got weaker as the day rolled on. I heard that there was a very large, late-day margin call that went out that caused the ES’s 10-handle drop after the 4:15 futures close. In terms of the ES’s overall tone, it was weak all day with every rally being sold. In terms of the day’s overall trade, volume was high compared to what we have been seeing at 1.9 million.
There is a lot of fed speak this week. On Tuesday, Fed Chairman Powell will be speaking before the House Select Subcommittee on the Coronavirus Crisis and the Fed’s policy response and the economy and there are several other Fed officials speaking. On Monday, New York Fed President John Williams speaks and on Tuesday there will be both San Francisco Fed President Mary Daly and Cleveland Fed President Loretta Mester. Other Fed speakers include Atlanta Fed President Raphael Bostic and St. Louis Fed President James Bullard. Aslo on Tuesday, existing home sales are released, new home sales are reported Wednesday, and personal consumption expenditures data on Friday.
Our view: sometimes there are 100 to 200 point pullbacks after a new contract high. If you look back, most of the pullbacks are 40 to 60 points but the current one is 116.50. I don’t think there is going to be a lot more on the downside. Our lean, I can’t rule out selling an early rally but if the ES is down hard, I’m going to be looking to buy it. There could be some more lows coming but my guess is most of the damage has been done but I am also concerned about the June end of the quarter rebalance.
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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