Premium OP: Is Bullish Sentiment Peaking?

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NJ – The Discovery Trading Group

Yesterday was President’s Day and US stock markets were closed.  Stock Index futures were open half a day, but little trading went on as the index futures need their underlying stocks to move.  Friday, Valentine’s Day was also a day of little net change. The ESH20 opened down and stayed under Thursday’s settlement before rallying for a slightly higher close.  The ESH20 remains perched under its all-time high. Expect volatility to contract as the market pushes higher. Given the long 3-day weekend and a light economic calendar, there is potential for the ESH20 to move this morning.  The Convid-19 continues to weigh on the markets, but for the most part, the US markets have remained remarkably buoyant. Apple (AAPL) issued a rare revenue warning which highlights the virus’s potential economic impact and could weigh on US stocks.  Size bias is short into the US cash session open. The ESH20 has been working an uptrend channel since the end of January and is expected to trade between 3345.75 and 3396.50 today.  

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Globex

(ESH20:CME) GLOBEX Session(ESH20:CME) Day Session 
High 3388.50Opening Print: 3378.25
Low: 3372.00High 3380.75
Volume: 251,000Low: 3365.25

ES Settlement: 3381

Total Volume: 1.2M

S&P 500 Futures: Run the Sell Stops, Then Run the Buy Stops

The S&P 500 futures (ESH20:CME) sold off down to 3372.00 on Globex and then rallied up to an overnight high of  3388.50 and opened at 3378.25 on Friday morning’s 8:30 CT open. After the open, the ES briefly up ticked to 3380.00 and then got hit by a series of small sell programs that pushed the futures down to 3370.25 at 9:15 CT.  After the low, the ES rallied 10.5 handles up to 3380.75 and then reversed back down and made a new low by one tick at 3370.00 at just before 1:00. The ES rallied up to the 3373.50 level and then sold off down to a new low at 3368.75  and just after the low, a headline came out saying that APPLE (AAPL) was going to reopen its store in Shanghai on Saturday and the futures rallied a few handles then sold back to 3368.25, a new low by 2 ticks and then rallied up to 3373.00 and then did a big downside sell stop run down to new lows at 3365.25. After the stop run the ES rallied 10 handles up to 3376.00 and then pulled back to the 3369 level at 2:15.

At 2:00, the ES traded 3372.00 as the early MiM showed 329 million to buy, traded 3371.50 at 2:30 as the MiM showed $207million to buy and traded 3377.00 on the 2:50 cash imbalance as the final MiM showed $1.5 billion to buy.  On the 3:00 cash close, the ES traded 3378.50 and settled at 3381.25 on the 3:15 futures close, up 2.5 handles or +0.07-% on the day. 

In terms of the ES’s overall tone, it’s all about running sell stops in the first part of the day and running buy stops later in the day. In terms of the day’s overall trade, total volume was low at 1.27 million with 251,000 coming from Globex making total day volume just over 1 million contracts.  

Our view: Is Bullish Sentiment Peaking?

Is Bullish Sentiment Peaking? Apple Warns Coronavirus Will Hurt Sales

Our view, 

According to Fidelity a record number of their 401k account holders now have balances of over $1 million. This is a far cry from the peak of the credit crisis when investors lost over 50% of their retirement accounts. While bullish sentiment continued to rise  I am starting to get very concerned about the global supply chain. When I spoke to Kun Wang, who runs MrTopStep China a few weeks ago, he sounded confident that China would contain the spread of the coronavirus but when I spoke to him on Saturday he sounded way more concerned. He told me that the general public is restricted from leaving their homes and can only go out two times a week to buy food and that if you want to go back to work you must petition the government. He went on to say that the streets were empty and the only people walking around were the Chinese military. 

Monday night Apple warned that the virus will hurt sales and became the first major U.S. company to say it won’t meet its revenue projections for the current quarter due to the coronavirus outbreak Apple said it said had limited iPhone production for world-wide sales and curtailed demand for its products in China. Additionally, out of a total of 1,723 passengers and crew members tested onboard the quarantined Diamond Princess cruise ship off the coast of Japan, 454 people were confirmed to have been infected. That included 189 asymptomatic carriers or those who tested positive but did not show any symptoms, according to the ministry. I don’t want to be an alarmist but in the past 24 hours, China has reported 2,052 new cases. In Hubei province, the epicenter of the outbreak and another 93 died. As of yesterday, the Chinese government said a total of 72,436 people are confirmed to have had the disease while 1,868 people have died. Despite China saying that more than 80% of the central state-owned enterprises’ roughly 20,000 manufacturing subsidiaries have resumed work my own opinion is that things will get worse before they get better.

Our view, its 8:45 CT Monday night and the ES is down 17 handles at  3371.00. In most cases when you get big headlines like @AAPL last night the ES sells off on Globex and rallies during the day session. That said if #AAPL’s supply chain is getting effect how many other companies will be affected? The other part of this is how far can the ES go before it actually starts to break down. Remember, in August 2015 when China’s PMI came in way lower than expected and the DOW was down over 1,000 points Monday morning? Like I said I do not want to be an alarmist but  I think the caution lights are flashing. Ideally, I want to get a look at this morning’s Globex volume before I decide on the early direction. You can take it from there…


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Danny Riley (3463 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


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