Vladimir Putin must have been laughing all the way to the bank yesterday. Oil prices jumped after an Interfax report was released saying that Saudi Arabia and Russia reached an agreement on an oil production freeze, which sent crude oil futures prices up by as much as 4%, to a year to date high of $42.23 per barrel. The Interfax report also said that Russia and Saudi Arabia had made the decision with or without Iran. In addition to the Russian reports, Kremlin spokesman Dmitry Peskov said in a message that, “there is hope” for an agreement regardless of Iran. This sent the S&P 500 futures up to a high of 2058.50 or up 1.25%.
Like it or not, the PitBulls Thursday / Friday low the week before the April options expiration worked like a charm, as did the S&P cash study that showed Tuesday (yesterday) as being the best percentage up day of the week. While crude oil did play its part in yesterday stock market rally, it also fell on one of MrTopStep’s favorite trading days, Turn Around Tuesday. We understand that not all of this fits everyones trading tool boxes, but last Thursday the ESM16:CME traded all the way down to 2026.00, and yesterday’s high was 2058.50, that’s a 32 handle rally in 3 trading day. On globex overnight the ESM16 took out yesterday’s high and traded up to 2069.00. During yesterday’s MrTopStep Periscope I said that I thought the S&P was on its to to 2075.00 to 2080.00, and as of last night’s high the futures were only 11 points away.
In all my years of being in the S&P, doing all the customer business we did and trading, I have to admit this is one of the hardest rallies to get long. After the big sell off in Asia, and the continued weakness in Europe, its was the S&P that led the world higher. Last night, or yesterday, China’s exports jumped the most in a year and declines in imports narrowed, adding to evidence of stabilization in the world’s second-biggest economy. As traders, we get paid by reacting, but much of the negative news that pushes the world markets lower all seems to have dissipated.
The other part of this rally is traders continue to short the S&P. Many of these shorts have refused to cover, and as the S&P approaches 2100.00, it’s our guess we see further short covering. When you throw in the April options expiration, our call is to see the 2075 to 2080 area, but if the futures keep going this week 2100 is possible. It’s all a game of longs and shorts, and the way it feels is, traders are still trying to short the S&P.
The world markets have reacted in kind to yesterday’s rally in the US with China and Europe up sharply. Now the question is, can the S&P continue to follow through? It’s my guess that with the news so positive, and the S&P up so much over the last few days, that today could be a pull back day, but that doesn’t mean that Part 3 of the trading day won’t see another push up late in the day. Clearly the easy money / zero borrowing cost trade is back.
In Asia, 11 out of 11 markets closed higher (Shanghai Comp +1.42%), and In Europe, 11 out of 12 markets are trading higher this morning (DAX +2.25%). Today’s economic calendar includes MBA Mortgage Applications, Retail Sales, PPI-FD, Business Inventories, Atlanta Fed Business Inflation Expectations, Petroleum Status Report, 10-Yr Note Auction, and Beige Book.
Our View: With the S&P up so much, pressing into new highs, and looking so good, the futures could be nearing a pull back. The S&P just looks too good to be true. We have a fair amount of economic and earnings to get past this morning. Our view, sell the early rallies and buy weakness keeping in mind that today could end up a pull back day. If not … say hello to ES 2100.00.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 11 out of 11 markets closed higher: Shanghai Comp +1.42%, Hang Seng +3.19%, Nikkei +2.84%
- In Europe 11 out of 12 markets are trading higher: CAC +2.50%, DAX +2.25%, FTSE +1.46% at 6:15am CT
- Fair Value: S&P -6.62, NASDAQ -8.08, Dow -89.77
- Total Volume: 1.8mil ESM and 7.9k SPM traded
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