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Chart of the Day
Earnings growth is scarcer in U.S. economy than S&P 500
Earnings growth is much harder to find at U.S. companies than the S&P 500 Index would suggest, according to Albert Edwards, a global strategist at Societe Generale SA. Edwards drew the conclusion in a report Thursday that compared the S&P 500’s forward earnings, based on analyst projections, with corporate-profit figures from the Commerce Department. The index-based indicator rose 52% from a March 2020 low through Thursday, according to data compiled by Bloomberg. The contrast with earnings for all U.S. companies is “extremely concerning,” Edwards wrote.
Our View
Russell 2000 Reconstruction; S&P New Highs
S&P 500 Futures Recap for June 25
The ESU21:CME traded up overnight, opened at 4262.75, traded 4266.50 at 9:33 after the pop, and then sold off down to 4260.75. After the low, the ES drifted higher on extremely low volume. After making several higher highs, the ES traded 4270.00 just after 10:30 am, pulled back down to 4263.75 at 11:06 and for the next 3 hours, we had a pretty right consolidation. When the ES took out the high of the day, it traded all the way up to 4275.25 at 3:18 after the MIM came out at $3.6 billion for sale. That’s a big one, but remember, a lot of it was the Russell rebalance.
At 3:34 the ES traded down to the 4270.00 area. The ES traded 4270.00 on the 3:00 cash close and settled at 4270.25, up 14.25 points or +0.35%.
In the end it was less than what I thought — it was busy in the first and last 45 minutes, then it was dead all day. In terms of the ES’s overall tone, it was very firm and gave up little ground on the pullbacks. In terms of the ES’s overall trade, volume was MISERABLE, with only 145,000 contracts traded on Globex and 721,000 on the day session for a daily total of 866,000.
Last week I said volume in the S&P futures will drop to under 800,000 for a full day. Now I think it will be closer to 700,000 over the summer. This in itself is concerning.
The Week Ahead
The last few weeks have been a lot to navigate. We’ve had Fed speakers, an FOMC announcement, quadruple expiration, quarterly rebalances, and the annual Russell reconstruction. Sheesh! This week should be much quieter, but there are still some key events to focus on.
We’ll have a consumer confidence reading on Tuesday (10:00 am ET) and pending home sales on Wednesday (10:00 am). We’ll also have the ADP employment number on Wednesday before the open (8:15 am).
Of course, we’ll get the initial jobless claims reading on Thursday (8:30 am), followed by the ISM manufacturing PMI reading (10:00 am). Last but certainly not least will be the monthly jobs report on Friday morning (8:30 am).
As we turn the page to July, we’ll have that big jobs report due up ahead of the long holiday weekend. With volumes already low, this could create some volatility.
Our View
It’s 7:00 pm Sunday night and the ES just traded up to 4278.75. The ES logged its best week since February 5th and closed at a record high, up 2.7% on the week. The Nasdaq closed modestly lower Friday but added 2.35% for the week and is up a whopping 4.45% since April. I am still bullish, but there is a total lack of volume and the VIX is at $15.62.
Further, JP Morgan said Friday that short interest in the SPDR S&P 500 ETF Trust (SPY) increased to its highest level this year after last week’s Fed meeting, suggesting investors have been adding more downside protection. I am generally not concerned about high levels of short interest, but when you look at how far the markets have gone up and you add in the above information, I do think it’s smart to be cautious.
Our Lean: Sell the early rallies and buy the midmorning pullbacks using tight stops. I actually think the ES is going to 4340 but that may take some time. As you may recall, I said at the end of 2020 that I thought the ES was going to 4200 and then 4600. I still feel that way.
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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