It was a wild card at best, but after three days of waiting, the Santa Claus rally finally showed up. During Thursday nights Globex session the S&P 500 futures (ESH18:CME) pushed back up to its all time high at 2698.25, up 14 handles. Total overnight volume was higher, 115,000 futures traded before the 8:30 CT open. The first print on Friday mornings open came in at 2693.75, and the futures went ‘straight down’ to 2684.50. After the low, the ES traded back up to 2688.25, then back down to a new low at 2683.25. While selling the higher opens has been a very strong pattern, part of the early weakness came from a headline that South Korea was holding a Hong Kong ship over the transfer of oil to North Korea.
After the first move, things started to quiet down, but the ES chart looked weak from the early selloff, and the lack of any real bounce was a prelude of things to come in the final hour. After 2:00 the institutional selling started to show up, and after running the buy stop on Globex, it was all about running the sell stops.
December Year End Rebalance: CRASH & BURN
The ES bounced back up to 2687.00 in very quiet trade. The next pullback was down to 2681.25. Just after 2:00 the MiM started to show over $400 million to sell, and the ES bounced back up to 2684.50. After making an afternoon high at 2686.50 going into 2:30, the S&P 500 got hit with several large sell programs, as baskets of stock were being sold off for the year end rebalance to take advantage of tax savings. The ES printed 2668.75 heading into the cash close, down nearly 20 handles from the overnight high, before settling the day at 2673.00, down 12.75 handles, and then selling off on the re-open down to 2667.75.
In the end, Santa did show up on the open, but left town soon after. The S&P 500 futures (ESH18:CME) settled at 2676.00, down -9.75 handles, or -0.36%; the Dow Jones futures (YMH18:CBT) settled at 24,735, down -62 points, or -0.25%; the Nasdaq 100 futures (NQH18:CME) settled at 6408.75, down -37.50 points, or -0.58%; and the Russell 2000 (RTYH18:CME) settled at 1536.50, up -13.10 points or -0.85% on the day.
As we tried to point out, the Santa Claus rally has had a good track record, but over the last 5 years it has been down down 0.60% on average. While the trade goes from the first trading day after Christmas to the second trading day of 2018, it looks like it could be down 6 years in a row. While it was a great year for the U.S. stock markets, Friday’s close was not pretty.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 7 out of 11 markets closed higher: Shanghai Comp +1.27%, Hang Seng +1.99%, Nikkei -0.08%
- In Europe 9 out of 12 markets are trading lower: CAC -0.69%, DAX -0.71%, FTSE -0.46%
- Fair Value: S&P +0.26, NASDAQ -11.85, Dow -24.30
- Total Volume: 1.1mil ESH & 644 SPH traded in the pit
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Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
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