No one promised us a rose garden in 2015 and with the S&P playing “second fiddle” to the German DAX (which was up 1.6% and closed down 1.9%) it’s getting harder to see through the woods. Have the days of the S&P being the lead index come to an end? Bonds crashing, and an all-out currency war, is starting to have a wearing effect, as is the $46 billion in outflows from the S&P 500.
YTD S&P 500 OUTFLOWS -$46 BILLION
Yesterday’s trade started with the ESM15 up 5.25 handles on the 8:30 open, a small buy program up to 2093, then the bottom fell out with the ESM15 falling all the way down to 2061.25. One minute the algos are chasing stops on the upside then it became a non-stop sell program with the S&P futures selling off 32 handles. My question on Twitter was simple; How many times can the S&P sell off hard and bounce before it just keeps going down? I know it sounds like a stupid question but I think all the selloffs are starting to have a wearing effect, like if a bad piece of news came out while the futures were trending lower the ES could close down 50 handles. Instead the ES rallied 13 handles on the close. So how does all this work? I have to be honest, I’m not exactly sure. The Fed can’t raise rates but some of the European markets like the DAX got way ahead of themselves and it looks like some of the institutions are selling into it, not buying it.
Look I could do all the ins and outs of yesterday’s drop but at the end of the day it’s one of two things. Either it was just a downside expansion of the range and the ESM is going to go flying back up after the PitBull’s Thursday-Friday low the week before the May options expiration; or the futures are getting ready to go back down to 2040. My guess is, as bad as the overall price action of the S&P futures are right now, we will bounce back up, but I also can’t rule out a retest of yesterday’s lows. Yesterday the algos went nuts but the total volume was only 1.75 million contracts, which seems low for such a big range. In the end the S&P futures have closed lower 4 out of the last 6 sessions. Admittedly, the markets look bad but the question you have to ask yourself, is this just another run for the downside sell stops before the futures rally back to S&P 2100.00 and beyond or the beginning of a real correction? I lean to the latter.
In Asia 11 out of 11 markets closed lower (Shanghai Composite closed down -2.77%) and in Europe 10 out of 12 markets quoted are trading lower this morning. Today’s economic and earnings scheduled starting with the UK General Elections, Chain Store Sales, Challenger Job-Cut Report, Gallup US Payroll to Population, EIA Natural Gas Report, Consumer Credit, Fed Balance Sheet and Money Supply and earnings before the open from: BABA AGIO APA BDX HILL IT GOGO GWPH INSY LGIH NXST PRFT PCLN REGN SSTK LEAF HHC TTM USPH, and after the close from: ACAD AL MDRX ALNY ALJ AHS ABTL CBS CERN CROX CYBR EBS FRT FRPT IMPV ICPT JCOM KYTH LCI MAIN 6.7% MDVN MELI MHK MOH MNST NVDA OUTR PHH SWIR SSFM DATA TRUE UBNT OLED ZNGA.
S&P Down 4 of the last 6 Sessions
Our View : The boat has a few leaks, and while its holding its own, it has a sinking feeling about it. I asked in the room and on Twitter, how many times can the S&P sell off hard and not keep going? It feels like all the global liquidation is starting to play catch up with the S&P. Nevertheless, there’s no good reason to blindly short the market expecting another 30-handle drop. We may see some more downside this morning following the overnight drop in global markets, including the bonds in Europe. So sell the rallies but watch support levels and be prepared to buy weakness or, if we do see a slide to 2040, to take that short sell in pieces to limit your risk exposure. Overall, our bias is to sell rallies and buy weakness, but with the caution that the weakness we see today may just be a pause before further let down.
- In Asia 11 of 11 markets quoted closed lower : Shanghai Comp. -2.77%, Hang Seng -1.27%, Nikkei -1.23%
- In Europe 10 of 12 quoted markets are trading lower : DAX -1.06%, FTSE -1.74%, MICEX -1.37 , GD.AT +2.34% at 7.00 CT
- Fair Value : S&P , Nasdaq , DOW
- Total Volume: 1.75mil ESM and 10.7k SPM traded
- Economic Schedule: UK General Elections, Chain Store Sales, Challenger Job-Cut Report, Gallup US Payroll to Population, EIA Natural Gas Report, Consumer Credit, Fed Balance Sheet and Money Supply.
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