MrTopStep has often said the markets will do what screws the most people, and I think that’s what has happened since last week’s FOMC meeting. There was a feel that the crowd was bullish heading into the release, after all, the S&P futures had been holding above 1900, and had been firm relative to the panic selling of August 24th. On the FED release day the futures soared higher, above the 2000 level not seen since since August 21st, and traders quickly started calling for new all time highs in weeks to come, as the ESZ15 was trading to a high of 2011.75. However, price reversed that afternoon, and after the buy stops had been run, their sights turned toward the sell stops. In less than 5 full sessions from last Thursday afternoon to this morning, the bulls have been stopped out, and the index found itself over 100 handles lower from just a week ago.
I have been telling readers to be careful, that when all seems stable and safe in the world, from nowhere the algo’s will move the S&P in such a harsh and violent way. Now the futures have made their lowest close since September 4th, the third lowest close of the month. What seemed to be so bullish a week ago, now seems far less optimistic.
Today is the one month mark since the panic selling of August 24th, and while the S&P futures have whipsawed, and had such wide weekly and intraday ranges, we find the price within 50 handles of the daily close on the August crash, and lower this morning than the weekly close of the crash. We have been highlighting the relevance of the 1950 level the same way we did the 2100 level all summer, and how volume would dry up above those levels and then build below, until one day it doesn’t reach the pivot and takes a leg lower.
When looking over the average price action of the last few corrections that the equity indexes have suffered, and even when looking at last years sell off in October, we see that prices do not tend to sustain higher until there is a retest of the lows. It certainly looks that way right now, as buyers give up, unable to push the equity markets higher with any conviction. Going into October there is the earnings season, and it’s not expected to be strong. That, combined with more debate and delay concerning FED action with interest rates, leaves the market with uncertainty. On top of all that, October historically tends to be heavily bearish seasonally. We are not calling for a melt down or further panic, but we do call it like we see it, and right now if buyers don’t step in and hold the 1900 September lows, then the season does come for more selling.
Yesterday after a weak globex session the S&P futures were unable to rally. Overnight, the futures traded lower early in the Asian session before bouncing and trading in positive territory early in the Euro session. The 3:00 a.m. CT in globex has been so relevant in recent weeks, and overnight that’s where the bottom fell out as the index fell 28 handles down to a low just below the 1908 price, matching the September 4th low. Currently it’s 6:45 CT and the futures are trading at 1912.50, a few handles from the low. CNBC is reporting that the Euro session drifted lower due to the emissions scandal in Europe, with implications now involving the auto manufacturer BMW. In yesterday’s Opening Print we highlighted how once these scandals start, they usually unwind with much more damage along the way, and now we are seeing that.
In Asia, 6 out of 11 markets closed lower (Shanghai Comp. +0.89%), and in Europe 12 out of 12 markets are trading lower this morning. Today’s economic calendar starts with Durable Goods Orders, Jobless Claims, Chicago Fed National Activity Index, New Home Sales, EIA Natural Gas Report, a 7 Yr-Note Auction, Fed Balance Sheet, Money Supply, and Janet Yellen speaks after the markets close at the University of Massachusetts, Amherst.
5 TRADING DAYS LEFT IN 3Q
Our View: It feels like the boat has a leak in it. I said yesterday that there is something wrong, but I could not put my finger on it, and I still feel that way. Yesterday, Tim from TopNotchTrading.com said that the S&P has finally broke its upward channel.
There is a lot of fear out there too, and it’s doubtful that Yom Kippur will mean anything useful. Overall, the stats are somewhat mixed but positive… the real question is, can it hold water? My gut says that while the S&P is down as much as 103 points over the last 4 days, there could be more weakness coming down the pipe. Our view is that you have to be prepared for a bounce, but we don’t think it will hold; sell the rallies. We are heading to the sell stops under 1912.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed lower : Shanghai Comp. +.89%, Hang Seng -.97%, Nikkei -2.76%
- In Europe 12 out of 12 markets are trading : CAC -1.48 %, DAX -1.83%, FTSE -.58% at 7:30 am CT
- Fair Value: S&P -10.59, NASDAQ -13.85, Dow -110.59
- Total Volume: 1,423,869 mil ESZ and 6,704k SPZ
- Economic calendar :Durable Goods Orders, Jobless Claims, Chicago Fed National Activity Index, New Home Sales, EIA Natural Gas Report, a 7 Yr-Note Auction, Fed Balance Sheet, Money Supply, and Janet Yellen speaks .[s_static_display]
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