S&P 500 Futures; Gap up, Run Up and Let Down
Thursdays firmer tone led to Friday’s firmer trade, which showed up again on Globex Sunday night going into Monday’s early day trade. If you listened to CNBC and Fox News then you heard a lot of reasons for the higher prices. Europe trading higher, crude oil up, and a few others… None of them said it like it really was though. This is just a big pre-Fed ‘short squeeze’. Let’s face it traders, the S&P reacts to overbought and oversold conditions, and with all the selling going on over the last 6 sessions, the crowd got ‘off base,’ and we all know how that ends up. This happens a lot, people get short in front of the actual news, and the markets move the other way leading up to the actual event.
After trading up to the 2146.00 level the ES started selling off. We saw an extra push when crude oil (CLX16:NYM) double topped at the $44.70 level before selling off under $44.00. Gold futures were up and the dollar traded lower.
After the sell off the ES started trading back up around 1:00pm cst. There was a double top at the 2139.00 level, one tick above the vwap at 2138.75, and then a slow chop lower started. Eventually the ES traded back down to 2130.00 going into the 3:15 CT futures close. Late in the day crude oil made a series of new lows down to $43.75 on globex.
FOMC and BOJ
Regardless of how the S&P sold off, and how it closed, the early push to the 2146.75 level was a great example of weak shorts getting squeezed out. In regard to the overall tone, the late weakness was a little concerning. As for the days overall trade, most of the 1.5 million ES that traded came during the early and late sell off.
Tonight we are expecting news from the Bank of Japan, meanwhile, today begins day one of the Federal Reserve’s two day meeting. While yesterday ended up being a decent trading day, its my guess things got quiet after 10:00 or 10:30 CT. Its also my guess that people are still off base and there could be more short squeezes around.
About Last Night
Equity markets in Asia were mixed and quiet overnight. When Europe came online it was the same old story again; bid the stocks up as European markets are pushing higher this morning. The ESZ kept a small bid early in globex that was intensified by the Euro open. The S&P pushed from its 2130.75 low just before the Tokyo open to a high of 2142.00 just after 5:00 am cst. Currently the ES is trading at 2140.75, up 7.75 handles, at 5:25 cst with total volume just over 100K.
The housing starts number is out early and there is not much else newsworthy until tonight’s BOJ and tomorrow’s Fed. Central banks are also meeting in Australia and New Zealand this week. Given that the buyers have shown resilience since the floor fell out two Friday’s ago, and now with some lower volume, less calendar trade today, the tendency is for price action to chop around pre Fed. That is what we should expect until 1pm tomorrow.
Bulls vs Bears
Bears need defend the 2150-60 price area. This is where they can possibly secure a lower high, and at least push the benchmark futures back to the globex open, even if they don’t go negative. Bulls need to complete a higher day setting up for a potential test of 2150-60 area right into FOMC. From there, it’s anyone’s guess.
In Asia, 6 out of 11 markets closed higher (Shanghai -0.10%), and in Europe 10 out of 11 markets are trading higher this morning (DAX +0.50%). Today’s economic calendar includes day 1 of the FOMC Meeting, Housing Starts, Redbook, and a 4-Week Bill Auction.
Our View: I still have a funny feeling about the ES. Like there could be more ups and more downs coming. For today, the market should be relatively orderly while trading in a range. Our call is to sell the early rallies while buying late day weakness, similar to yesterday, as we don’t expect for either side to take control yet.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 6 out of 11 markets closed higher: Shanghai Comp -0.10%, Hang Seng -0.08%, Nikkei -0.16%
- In Europe 10 out of 11 markets are trading higher: CAC +0.29%, DAX +0.50%, FTSE +0.52% at 6:00am ET
- Fair Value: S&P -7.24, NASDAQ -6.13, Dow -87.76
- Total Volume: 1.5 mil ESZ and 4.8k SPZ traded
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