The S&P goes up and the S&P goes down, but it’s done an especially good job of going down so far this year. Wednesdays 65 point rally in the S&P futures ( ESH16:CME) was a good example of how fast the S&P can go up, but the larger question on traders minds is, did the S&P make a bottom or is this just another dead cat bounce to sell?
Yesterday the S&P futures had a quieter, lower volume session but that didn’t keep the Algorithmic and HFT trading programs from exploiting the moves in the day’s trading range. For the most part the ESH16 made and early low at 1840.75 and then rallied all the way up to 1883.25 around 11:00 CT. After the S&P made its high it sold off down to the 1852 level, rallied back up to 1971.50, then continued to sell off and rally several more times before the 2:45 cash balance showed $200 million to buy. When I look at the overall price action of the S&P and crude oil futures over the last two days I believe something is changing. Over the last several weeks every time the ES or CL rallied, offers would come filtering in, but now after the ESH made its 1804.245 low on Wednesday, the overall price action went from offers fluttering in after the short covering rallies to bids filling the book after the selloffs. The other part of this is that the size of the buying has increased. Does this mean that the lows are in? I don’t know. After nearly a 10% drop in the Dow and S&P, and over 10% drop in the NASDAQ, does the S&P closing up 0.80% mean much? I believe it would if crude oil could continue to trade higher while the weakness in China and Europe let up, but that doesn’t seem in the cards right now.
The Dow futures (YMH16:CME) that were up as much as 262 points closed up 78 points, or +0.50%. The S&P futures (ESH16:CME) that made a high at the 1883 level closed up 9.5 points, or +0.50%, and the Nasdaq 100 futures (NQH16:CME) that were up as many as 64.25 points, settled up 1.25 points, or +0.02%, at 4129.50. So was the rally real? Sure it was real, but after a 230 handle drop an 80 handle rally sounds good, but in order to keep going higher the VIX is going to have to start cooperating on the downside for any further substantial gains to be made.
Late in the day several traders started talking about how the weakness that has been occurring on Fridays has rolled into the following Monday. Despite the rally in both the S&P and crude oil I’m still not ready to say all is forgiven. There is just too much volatility and too many big moves to think that this is going to just end in a few days. While I love to read the volume charts, my gut is still telling me this is far from over. With half of the companies in the S&P 500 reporting earnings next week, and a lot of big tech names, we may have to get past the earnings to really see what the S&P is made of.
Asian and European Stocks Follow The U.S.
In Asia, 11 out of 11 markets closed sharply higher (Nikkei +5.88%), and in Europe 12 out of 12 markets are trading sharply higher (DAX +2.33%). Today’s economic calendar includes the Chicago Fed National Activity Index, PMI Manufacturing Index Flash, Existing Home Sales, Leading Indicators, and the Baker-Hughes Rig Count.
S&P 500 / China / Rate Hike / PushBack
Our View: I’m going to keep it simple. The S&P has been trashed in 2016 and looks like it’s trying to level off. That said, looks can be deceiving. Our view is to be careful. The S&P 500 futures have rallied 80 handles in a day and a half and and appears to be back in filling. If that indeed is the case then there should be a retest of the 1883 highs and then up to the 1890 -1895 level.
Some traders will say the rally has something to do with Asia and Europe being up sharply, but the real deal is the ESH16 was back and filling below the vwap late in the day yesterday. The PitBull asked me 01:12:33 PITBULL: 1920 next week? And this is what I said 01:12:44 TRADINGDATA2: (driley) yep. Our view, is we lean to selling the early rallies keeping in mind the ‘very high’ level of buy stops that are above the market in the ESH16, YMH16 and the NQH16, and buy weakness.
‘S&P 500 Back and Fill’
As always, please use protective buy and sell stops when trading futures and options.
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- in Asia 11 out of 11 markets closed sharply higher: Shanghai Comp +1.25%, Hang Seng +2.90%, Nikkei +5.88%
- In Europe 12 of 12 markets are trading sharply higher: CAC +3.14%, DAX +2.18%, FTSE +2.32% at 5:15am CT
- Fair Value: S&P -7.26, NASDAQ -9.41, Dow -85.70
- Total Volume: 2.7mil ESH and 7.1k SPH
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