After the Dow had its best day since September 11th, and made its 54th new all time high in 2017 on Tuesday, it turned around and had its worst day since September 5th yesterday. While things looked bad early in the day, the bounce back showed just how resilient the US stock markets are.
Yesterday, trade started with 180,000 S&P 500 emini futures traded on Globex. The overnight range was 2560.50 to 2566.25, only 6.25 handles. On the 8:30 CT futures open the ES traded 2563.75, rallied up to 2565.00, sold off under the vwap at 2562.75, and then went back up and double topped at 2565.00 in the first few minutes of trade. After that, in came the sell programs. Several big names, such as AMD, AT&T, Boeing, Chipotle and Coca-Cola, all traded lower after reporting earnings. According to FactSet, one-third of the S&P 500 has reported earnings so far, and roughly 73% of those firms have beat expectations compared with the five-year average of 69%.
Once the selling started, the algos locked on to the downside ES stops, and in came the sell programs. At 9:07 the ES traded down to 2559.25, then popped a few handles up to 2562.00, before selling off hard down to 2552.25. After a small bounce the ES traded back up to 2555.25, and then several more sell programs pushed the ES down to a new low at 2548.50. After another rally up to 2551.25, in came a few more sell programs, pushing the future down to 2546.25. The next move was another head fake, with the ES trading back up to 2552.25, and then pushing right back down to double bottomed at 2546.25 at 11:07 CT. The next set of sell stops / sell programs pushed the ES all the way down to 2541.50 at 11:30, down 25.75 handles in 3 hours.
In yesterday’s view I said, “It seems like the markets are tired. That doesn’t mean the ES will go down much, but we can’t rule out some type of selling and like most people, I want to see a selloff / pickup in volatility, but I also remain in the camp that there is not going to be any large drops, or a crash. Sell the rallies and buy weakness with tight stops”
I admit that I didn’t think the ES would drop so far so fast, but I also was not surprised. With the continuous upside, and no pullbacks, the decline was long overdue. After the 2541.50 low the same algos that ran the sell stops started running the buy stops. With the exception of a few small drops, the ES rallied back up to 2550.00 at 12:15, pulled back down to 2547.25, and then rocketed all the way up to 2556.25 around 1:30, a 15 handle rally in 2 hours. The next move was back down to 2551.25. After the pullback, 7.5k ES were bought on 5 buy imbalances, and the ES traded back up to 2555.00. At 2:35 total ES volume was 1.75 million contracts, the highest volume in over 3 months. After the buy imbalances showed up, the ES traded up to 2557.50, down 7.5 handles or -0.30%, as the MiM showed $272 million for sale. At 2:25 the MiM flipped to sell $1 billion, and the ES sold back off under the vwap, down to 2550.75, and then ripped up to a new late day high at 2558.75, down only 6.25 handles, or -0.26%.
When the ES was on its low the VIX jumped to 13.20 but closed at 11.23, +0.07. In the end, S&P 500 futures (ESZ17:CME) settled at 2558.50, down -8.75 handles, or -0.34%; the Dow Jones futures (YMZ17:CBT) settled at 23301, down -102 points, or -0.43%; the Nasdaq 100 futures (NQZ17:CME) settled at 6064.50, down -15.00 points, or -0.24%; and the Russell 2000 (RTYZ17:CME) settled at 1498.00, down -3.40 points or -0.22% on the day.
While You Were Sleeping
Overnight, equity markets in Asia traded mixed, with a slight bias to the upside, and were held up by the Shanghai Comp., which closed up +0.33%. Meanwhile, in Europe, stocks are trading higher this morning, with the French CAC leading the charge at +0.84%.
In the U.S., the S&P 500 futures opened last night’s globex session at 2559.50, and were held to just a 3 handle range for most of the night. As earnings reports started to hit the tape, the ES made a move up to new highs just before 7:00am CT. As of 7:15am CT, the last print in the ES is 2561.50, up +3.25 handles, with 196k contracts traded.
In Asia, 6 out of 11 markets closed higher (Shanghai +0.33%), and in Europe 10 out of 12 markets are trading higher this morning (FTSE +0.53%).
Today’s economic calendar includes International Trade in Goods (8:30 a.m. ET), Jobless Claims (8:30 a.m. ET), Pending Home Sales Index (10:00 a.m. ET), EIA Natural Gas Report (10:30 a.m. ET), Kansas City Fed Manufacturing Index (11:00 a.m. ET); Fedspeak — Neel Kashkari Speaks (10:30 a.m. ET); Earnings — KKR (6:00 a.m. ET), Comcast (6:00 a.m. ET), Hilton Worldwide (6:00 a.m. ET), Southwest Airlines (6:30 a.m. ET), Marathon Petroleum (6:55 a.m. ET), Lazard (6:50 a.m. ET), Ford (7:00 a.m. ET), Twitter (7:00 a.m. ET); Boston Scientific (7:00 a.m. ET), Marsh & McLennan (7:00 a.m. ET), Bristol-Myers Squibb (7:00 a.m. ET), Altria (7:00 a.m. ET), Hershey (7:00 a.m. ET), ConocoPhillips (7:00 a.m. ET), Xerox (7:00 a.m.), Charter (7:30 a.m. ET), Celgene (7:30 a.m. ET), T. Rowe Price (7:30 a.m. ET), McKesson (7:30 a.m. ET), American Airlines (7:30 a.m. ET), UPS (7:45 a.m. ET), Union Pacific (8:00 a.m. ET), Alphabet (4:00 a.m. ET), Expedia (4:00 p.m. ET), Intel (4:00 p.m. ET), Boston Beer Co. (4:00 p.m. ET), Amazon (4:01 p.m. ET), Stryker (4:01 p.m. ET), Chubb (4:01 p.m. ET), Gilead Sciences (4:01 p.m. ET), Microsoft (4:09 p.m. ET), Mattel (4:05 p.m. ET), Hartford Financial (4:15 p.m. ET).
Up A day / Down A Day
Our View: The number of economic reports, fed speak, the ECB, and earnings out today are astonishingly high. While there are some big names reporting before the bell, Alphabet, Amazon, Mattel and Intel all report after the close. Personally, I like the pick up in trading activity. Our view, we think you buy the pull backs. If the ES gaps higher you could sell the early rally, but we lean to higher prices. Like we said above, up a day / down a day.
Market Vitals for Thursday 10-26-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed higher: Shanghai Comp +0.33%, Hang Seng -0.36%, Nikkei +0.15%
- In Europe 10 out of 12 markets are trading higher: CAC +0.84%, DAX +0.58%, FTSE +0.53%
- Fair Value: S&P -2.71, NASDAQ -0.16, Dow -55.45
- Total Volume: 2.09mil ESZ & 643 SPZ traded in the pit
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