Market Review
Globex
| (ESH20:CME) GLOBEX Session | (ESH20:CME) Day Session |
| High 2863.50 | Opening Print: 2820.50 |
| Low: 2910.75 | High 2859.50 |
| Volume: 490,000 | Low: 2809.50 |
| ES Settlement: 2846.75, down 1.5 handles or -0.05% | |
| Total Volume: 1.85M |
S&P 500 Futures: Run The Sell Stops / Run The Buy Stops
The ES traded 2820.50 on Friday’s 8:30 futures open, traded 2825.00 and then sold off down to 2809.50 (low for the day) at 8:36. After the low, the ES traded back up to the vwap at 2833.00, pulled back a few handles then made a new high at 2847.00 at 9:16 am. After pulling back down to the 2828.50 at 9:35 the ES made a high low at 2840.75 and then pulled back down to 2814.75 at 10:03. The ES then traded back up to 2844.25 at 11:43. The ES sold back off down to 2832.00, traded 2854.75 at 1:00 and then pulled back 12 handles, down to 2842.00 at 1:35.
At 2:00 CT, the ES was at 2843.50, traded 2851.00 at 2:30 and traded 2850.00 on the 2:50 cash imbalance as the MiM showed $1.2 billion to sell. On the 3:00 cash close the ES traded 2859.50 and then settled at 2846.50 on the 3:15 futures close, down 1.5 handles or -0.05% on the day.
In terms of the ES’s tone, with the exception of the early sell-off down to the Globex lows, it was a fairly bullish day. In terms of the day’s overall trade, 1.85 million ES traded with 490,00 of the volume coming from Globex making total day volume somewhat low at 1.36 million traded on the day session.
Economic Calendar
Closing Prices
In the Tradechat Room
MiM
Selling MiMs into a strong close. Early on, shortly after 3 pm, the MiM was settled right in the middle and although we showed a 1B sell imbalance that #% was still below the 66%. Still no breadth. The 3:50 pm candle showed reaction to the top line 1 billion, quickly sold off 5 handles and then retraced back up about 7. A nice entry for nimble fingers.
Questions? Please email me: Marlin@mrtopstep.com
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Our View
S&P MakeOver ‘Looms’
I agree with Federal Reserve Chairman Powell that the U.S. economy will get back to its pre-covid19 levels but it’s going to take time and a vaccine. That said, we live in the here and now and the now part of it is a lot of companies are going out of business. As the S&P cascaded lower in March already weakened companies in the S&P were struggling. Dozens of companies are now at risk of deletion after shares plunged. Shifts in index composition are made as needed and “changes in response to corporate actions and market developments can be made at any time,” according to S&P Dow Jones Indices. While guided by rules-based standards, index compilers must also grapple with the same judgment as everyone else in assessing the market right now: how much of the Covid impact will turn out to be permanent?
According to Nicholas Colas of DataTrek Research, more than 30 companies are teetering on the edge of removal. “The S&P 500 may be the world’s most-followed passive index, but COVID-19 and its aftermath are going to force its constructors into some very active choices, the S&P committee is going to have to decide how long they want to wait before ditching COVID-damaged companies” The deletions center on retail, industrials, and energy companies while health care and tech stocks have seen weighting increases since the March lows. According to data compiled by Bloomberg, an equal-weight basket made up of companies that were booted from the S&P 500 over the past three years (for reasons other than acquisitions) is down 47% this year, almost five times more than the benchmark’s 2020 decline. Just five of the ousted firms have posted positive returns, while half have plunged 40% or more. Oil and gas companies including Chesapeake Energy Corp. and Transocean Ltd. are still off by 80% or more. Bed Bath & Beyond Inc. and Macy’s Inc. are down roughly 70%. Many of these companies were already in some form of trouble before COVID-19 struck, hence their removal. The removal of 30 companies would surpass the annual average over the last three decades and rank with some of the busiest years. In equity indexes, companies are booted when they fall below standards tied to market-cap or profitability. And a company must have a market cap of at least $8.2 billion for S&P 500 consideration. Liquidity measures must also be sufficient, and the sum of total earnings over the past four quarters must be positive, along with profits in the most recent quarter. On May 12th Capri Holdings Ltd., the company behind retail brands including Versace and Jimmy Choo, was removed from the S&P 500 after it lost roughly $5 billion in market value this year. As Capri was transferred to the S&P Small Cap 600 Index, medical device company DexCom Inc. and Domino’s Pizza Inc. were added to the large-cap gauge. Both companies have posted double-digit gains in 2020.
I know all about ‘deletions’ or ‘swaps’ and over the years I have learned that they cause big jumps in volatility and massive volume. I do not know enough about the potential four dozen companies that could be set for deletion but what I do know is even if it’s only half the companies it’s going to make for a difficult time for the S&P.
Our view, If the ES gaps sharply higher I plan on selling it on the open with a few extra offers in above. If all goes according to plan I will be looking to cover and go long into the mid-morning low and hold for a larger bounce. After that, I will be looking for the MiM 2:30 sell off to get long and look for a rip into the close. I am really trying to avoid the midday chop. Seems like the ES wants to see higher prices.
Danny Riley is a 39-year veteran of the CME trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.
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