S&P 500 Futures; Rest Day and the End of the Third Quarter
The final 5 trading day of the third quarter have a high level of fed speak and economic reports. This week is capped of with Janet Yellen speaking before congress on Thursday. There are a total of 11 Federal Reserve bank presidents speaking and 20 economic reports ranging from Consumer Confidence to the U.S GDP.
As last week wore on and and the markets continued going up we had a feeling the index futures markets would take a breather and that’s basically what they did. The S&P 500 futures (ESZ16:CME) rallied up to an early high at 2172.75, then sold off and double bottomed at the 2161.75 level, before bouncing back up to the 2166.60 area. When I spoke to the PitBull he asked me what I thought was going on and I told him that people were ‘beat up’ from the last two weeks and not interested in trading today.
On Friday the ESZ traded in a 10.25 handle trading range with 1.4 million contracts traded. Before the futures broke down in the afternoon the morning only saw 550,000 ES traded in a six handle range, that’s way below the last few days. The late day trade consisted of another small push lower, then a pop back up to the 2162 area, and a small push back down a few points on the close. The days overall tone was on the weak side, but so was the day’s volume.
Last 5 Trading day of the Quarter
A friend asked me if I really believe in historical statistics like the Stock Trader’s Almanac. He then went on to say that he didn’t believe in it at all. Before I respond I want to explain something. Over the years of being on the trading floors, and after leaving the floor, I have always felt that every trader is entitled to his or her own opinion. That is what makes up the markets. One person thinks the S&P futures are going lower and sells it, and the other thinks it’s going higher and buys it. Within that buying and selling is what makes up market sentiment and overbought and oversold conditions.
So, do I believe in the Stock Trader’s Almanac or research by firms like Ned Davis? Yes, I do. Over my 38 years on the floor I saw too many times where the S&P repeated itself in long and short term trading. Do I believe in the best and worst 6 month for stocks? Yes, I do. While my interpretation may not always be exact I also believe that the mutual funds and big investment firms buy stocks on the final three days of the month, the quarter, and at year end. I also believe they buy stocks on the first three days of the month or new quarter.
Moving Forward
I think the rest of the year is very important. Despite taking on a lot of risk earlier in the year many have cut their exposure way back. It’s not just about trying to make a few bucks it’s also about keeping up with all the twists and turns. As hedge funds cut back on their bets they are basically waiting to see how stocks will close at year end. Some are up a few percent, and some are down a few percent, but just like you and I they are finding it harder and harder to make the money that they used to.
It’s not hard to see what’s going on. Big firms like Renaissance and Citadel are at the forefront of high powered algorithmic and high frequency trading programs and they don’t lose. That money has to come from somewhere, and that somewhere is the retail trader, and the big hedge funds that used to gamble with futures that either cut way back or don’t trade at all.
It’s going to be a big week. With the VIX so low, 11 fed bank presidents speaking, Yellen speaking Thursday and the end of the third quarter on Friday things could get a little rough.
While You Were Sleeping
Overnight equity markets in Asia and Europe had a noticeable risk off trade as all the major indexes were sharply lower. There is an OPEC meeting in Algeria this week, the end of quarter trade, T+3 tomorrow, and Deutsche Bank shares in Europe fell 6%. Tonight features the first U.S. Presidential debate which is likely to be the most entertaining ever.
The S&P 500 futures traded lower all night. A high was made early in the Tokyo session at 2159.50 before being offered down to 2144.25 on the European open. There was a five handle bounce up to 2149.25 and currently sits at 2148.00, down 10.00 handles, after being down as much as 13.75 handles with total volume at 165K at 6:23 am cst.
Between all the potential headlines and overnight weakness, today could see some good action and a possible two sided trade. The levels MrTopStep has been watching are 2145, which was resistance now turned support,. and held in the overnight session. Below that 2130-2125 area offers support. To the upside we see some resistance at 2158.
Big Week Ahead
In Asia, 10 out of 11 markets closed lower (Shanghai -1.76%), and in Europe 11 out of 11 markets are trading lower this morning (DAX -1.48%). This week has an increased level of economic reports and Fed speak, and there are a total of 23 reports and 11 Fed speakers. Today’s economic calendar includes Neel Kashkari Speaks, New Home Sales, Dallas Fed Mfg Survey, 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, a 2-Yr Note Auction, and Robert Kaplan Speaks.
Our View: Something tells me the end of the quarter could see some big swings. There is not much left to be say. Our view, there is always an initial pop. After that the ES usually pulls back mid-day and then bounces. You can take it from there.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed lower: Shanghai Comp -1.76%, Hang Seng -1.56%, Nikkei -1.25%
- In Europe 11 out of 11 markets are trading lower: CAC -1.63%, DAX -1.48%, FTSE -1.27% at 6:00am ET
- Fair Value: S&P -7.48, NASDAQ -6.90, Dow -92.21
- Total Volume: 1.4mil ESZ and 4.4k SPZ traded
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