You have to take futures trading one day at a time, and you also have to have a feeling for when the ESZ15 ‘swings’ from overbought to oversold. As the algorithms are programmed to trade the overnight Globex trading range, they are also programmed to ‘feel out’ overbought and oversold conditions and where all the buy and sell stops are. In the last two days the overbought conditions have led to a 32 handle decline from Tuesday’s 2014.75 high. Along with the big rally has come a big shift in sentiment and new buying in the stock market.
Negative Earnings and Economic Activity
Several negatives hit the S&P futures yesterday. The first part was the ongoing weakness in the economic reports, both PPI and Retail Sales came in lower than expected. Walmart shook the retail sector when it warned that the next two years of sales will be down. The stock sold off sharply and saw it worst trading day in 20 years, down over 9% in one day. JPM ‘weak trading environment’ that gave its earnings a first miss in several quarters, the US Dollar trading down to a 7 year low, and late in the session the Beige book came in combined with Fed speak that seems detached from reality…all of this sent the ESZ15 down to new lows. The S&P had been looking for a reason to sell off / pull back, and yesterday was loaded with negatives. On the flip side, Bank of America and Wells Fargo beat expectations, but Netflix fell short. At the end of the day The Dow Jones Futures closed down (YMZ15:CBT) 131 points, or -.80 %, at 16793. The S&P futures (ESZ15:CME) closed down 7 points, or -0.50%, at 1982, and the Nasdaq Futures (NQZ15:CME) closed down -0.30% at 4331. Gold (GDX5.CMX) closed up +1.2% at $1,180.10 an ounce, and crude oil (CLX15:NYM) closed down -0.40% at $46.64.
Diminishing Signs of 2015 Rate Hike
The main drive of the S&P right now is the idea that the ongoing negative economic data will stop the Federal Reserve from raising interest rates away from its zero borrowing policy. Last week I made a comparison to what’s going on in the US to Japan’s plight. While the Fed still has two meetings left this year, one on October and one in December, we know there is a big push to raise rates this year, but we are still on the side that says there will be no rate hike until the first quarter of 2016.
I’m going to keep this short. Right now the main focus is the October options expiration and the third quarter earnings. The S&P futures rallied 33 points from last week’s 1981 low to this week’s 2014.75 high. It’s not the 50 or 60 handle pull back I was looking for, but I also didn’t think the ES would go down into the expiration itself. There are still 12 trading days left in October, or until the markets move into the ‘best 6 months ‘ for stocks (November to April). I am sticking to my year end 2150 to 2200 call.
Asia and Europe Rally
In Asia, 11 out of 11 markets closed higher (Shanghai Composite +2.32%), and in Europe 11 out of 12 markets are trading higher this morning (DAX +1.44%). Today’s economic releases start with the Consumer Price Index, Jobless Claims, Empire State Mfg Survey, St Louis Federal Reserve Bank President James Bullard opens St Louis Fed annual policy conference, Philadelphia Fed Business Outlook Survey, EIA Natural Gas Report, New York Federal Reserve Bank President William Dudley conversation on the Fed at a crossroads, in Washington, EIA Petroleum Status Report, Treasury Budget, 3 and 6- Month T bill Auctions, 30-Yr TIPS Announcement, Cleveland Fed President Loretta Mester speech on determinants of long-run growth, in New York, Fed Balance Sheet and Money Supply.
2000.00 GLOBEX HIGH
Our View: Asia rose sharply and the European broses rallied, that pulled the ESZ15 back up to 2000.00 on Globex last night. I think it’s important to understand that there had to be some type of early week pull back to run the ES back up today, and for tomorrows October options expiration that showed today up 19 / down 12 of the last 31 occasions and expo Friday been up 18 / down 31 of the last 31 occasions, and the Monday after the expo is up 22 / down 9 of the last 31.
Download all of the October expiration stats here…
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. +2.32%, Hang Seng +2.00%, Nikkei +1.15%%
- In Europe 11 out of 12 markets are trading higher : CAC +1.14%%, DAX +1.44%, FTSE +0.83% at 5:30 am CT
- Fair Value: S&P -7.93 , NASDAQ -11.12 , Dow -98.13
- Total Volume: 1.76mil ESZ and 3.3k SPZ
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