Yesterday the S&P 500 built on top of European weakness and sluggish earnings to see a near 20 handle pullback from contract close-to-close. The S&P 500 index futures found initial resistance at the 2100 area, making a late Wednesday high of 2105.25 before selling into the close then revisiting up to 2104 in Thursday’s globex session, and then proceeded to fall over 25 handles from those highs. Alphabet Inc (GOOG) reported after the close with mixed results and shares initially responded with a 8% sell off below $700 leaving some traders questioning the effect on the broader index market going into Thursday and as of this mornings premarket quotes. GOOG is currently trading down near 5% to $724.
Overnight global markets experienced weakness both in Asia and Europe, however, the ESM16 has maintained a sideways to higher range in globex making a high this morning of 2089. up 6.25 handles. and is currently trading at 2085.00. Despite the weakness yesterday the equity index futures are still showing a measure of resilience having maintained higher prices overnight as world markets ticked lower. Even with all the potential bearish perspective at the 2100 level, traders must remind themselves who controls this market, that being the buyers. Until the S&P can show something new we must lean toward buying any dips as the S&P 500 cash index has now traded a higher weekly low for 13 consecutive weeks. At the end of the day, 2100 could be the pivotal resistance price as it was last year, but until bears actually show strength we have to consider any selling mere noise. It’s going to require more than a 10-15 handle move off the highs to turn the flavor of this market. When 1900,1950,2000, and 2050 all traded this year after the February 11th lows there was initial resistance at each of these levels and after a few days of back and fill buy programs pushed the markets higher.
The markets are heading into a seasonally sluggish time, and while “sell in May” rings true ,it doesn’t mean the S&P will immediately tank, just merely that the strongest seasonals are behind the markets until November. Last year the high was made in mid May, and the equity markets maintained a sideways trends from then until the end of the Summer, and we see the potential for the same type of move. It’s hard to believe that buying will be so firm into and above new all time highs but at the same time while the price action may become more sluggish, we don’t see bears with any firm control yet either.
In Asia, 8 out of 11 markets closed lower (Shanghai Comp +0.22%), and In Europe, 9 out of 12 markets are trading lower this morning (DAX -0.36%). Today’s economic calendar includes the PMI Manufacturing Index Flash, Baker-Hughes Rig Count and earnings from CAT, GE, MCD and more.
From Stock Traders Almanac:
As of yesterday’s close DJIA was up 3.85% year-to-date; S&P 500 was up 2.86%, NASDAQ down 1.18% and Russell 2000 was up just 0.56% which creates the relatively unique situation where DJIA and S&P 500 are outperforming both NASDAQ and Russell 2000. In 45 years since 1971, DJIA and S&P 500 have bettered NASDAQ and Russell 2000 just eleven times (Russell 2000 eight times since 1979) over the course of the full year. Seven of those eleven years were flat to downright ugly. Only 1975, 1986, 1989 and 1997 were above average years.
Generally the Russell 2000 and NASDAQ tend to be comprised of U.S. orientated companies of smaller size which are generally more sensitive to local economic conditions. Poor performance from these companies is suggestive of either current weakness or a tepid U.S. outlook.
Our View: We are keeping today’s Opening Print short and sweet as we close out the week with a light calendar Friday. The prices we are looking at to the downside are the low area from yesterday and overnight in globex around 2077-79. If this area breaks then we see 2070 on the way today, and depending on how the close is today, there could be follow through next week. However, it is still a buyers market until proven otherwise and that 2077-79 is a solid buy area on the first touch for trading a bounce. The overnight high is 2089 which coincides with yesterday’s final hour high. We see the 2089-92 area as initial resistance and worth a solid fade on the first touch. 2100 and 2050 are both magnets right now, and while we believe that lower prices are reasonable and necessary, we still think that 2100 has the stronger magnet force.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed lower: Shanghai Comp +0.22%, Hang Seng -0.72%, Nikkei +1.20%
- In Europe 9 out of 12 markets are trading lower: CAC -0.21%, DAX -0.36%, FTSE -0.95% at 6:30am CT
- Fair Value: S&P -6.19, NASDAQ -8.08, Dow -79.90
- Total Volume: 1.63 mil ESM and 8.4k SPM traded
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