S&P 500 FUTURES PRE-FED RIP; WHAT ARE WE MISSING?

The S&P 500 was on another push to the upside yesterday. The index futures have now closed higher 5 of the last 7 sessions and is now up almost 7% off its August 24th low of 1831.00. The futures are now up on a weekly and monthly basis but still down around 3% on the year. Yesterday’s session, while firm, was a very quiet trade with only a few small pull backs. One floor trader from the S&P pit we spoke to said “it was impossible to buy, and the locals around me, myself included, kept selling the rallies and getting stopped out”. The first day of the Federal Reserve’s two day meeting was a low volume push higher, and it again looked like there was sme type of program / asset allocation going on, buying stocks and selling bonds. Tuesday the treasury market saw a very large sell off making most people think the fed will raise rates. While MrTopStep continues to say the fed will not raise rates, however, we do think it’s coming soon but we don’t think the pace of the rate hikes will be very gradual.

Many traders find it hard to believe that the S&P has closed higher 5 out of the last 7 sessions but after the index pushed back from this week’s concerns and lower trade in Asia and Europe, more traders are starting to wonder if the worst is over. 

Yesterday the Dow futures (YMZ15.CBOT) opened 11 points higher, pulled back a little, and then ripped higher trading all the way up to 16672. The S&P futures (ESZ15.CME) did the same thing, opened unchanged, then pulled back to 1967.00 before trading all the way up to 1987.75 on the 3:15 CT futures close. The Nasdaq futures also opened unchanged, traded down then made a high of 4382.

Last night the the ESZ15 opened nearly unchanged and kept drifting lower throughout the night making a low just after 3:00 am CST of 1981.25, down 6.75 handles. Since then the futures have bounced up to 1986.50 and currently sit at 1984.50 at 6:30. Given the run up in equity markets over the duration of this bull market but now coming off a correction, and with 9 years since the last rate hike, the market situation is unprecedented. There is no way to know which way the market will react whether a rate hike is announced or not. We expect that most of the book squaring was completed the last two days and would expect for a low volume sideways action into the afternoon’s announcement.

Let’s face it, the market’s do not thrive on uncertainty, that’s no secret. I have been saying all year when the S&P 500 was unable to make new highs, like in 2013 & 2014, that part of what was wrong was the uncertainty of this rate hike decision amongst other things. Yesterday I spoke to a veteran desk manager at a fund in New York and he said his entire office was “on edge” about today, that’s not a good thing, and if the rest of the market feels that way then it’s a bad thing. Traders have been listening to this Fed rate hike talk for so long it grows unsettling, and with a political year next year, the rate hike needs to come now. That would allow for the economy to adjust in the last quarter of this year and give next year’s projections time to be altered. Do you think the Fed is listening?

In Asia, 9 out of 11 markets closed higher (Shanghai Comp.-2.10% ) , and in Europe 7 out of 12 markets are trading modestly higher this morning. Today’s economic calendar starts with the Housing Starts number, Jobless Claims, Current Account, Philadelphia Fed Business Outlook, EIA Natural Gas Report, 2,5,7 Yr-Note Announcements, FOMC Meeting Announcement and Forecasts at 1:00 CT, Fed Chair Press Conference, Fed Balance Sheet and Money Supply.

Our View: There are a lot of confused people out there but if there is one thing that is clear it’s that the shorts are getting squeezed out again. Popular consensus says China was going down and going to cause a global collapse, It did but for one day. I can’t say for sure the S&P is out of the woods yet, but the negative sentiment seems to have been eaten up by the rally in days. In all honesty, I thought the spoos could rally, but I didn’t think they would trade up to 1990. The fact that the ESZ has gone so far could mean there is a little more upside before it starts to go down.

MrTopStep Radio Show today at 11:55 CT

• In Asia 9 out of 11 markets closed higher : Shanghai Comp. -2.10%, Hang Seng -0.51%, Nikkei +1.43%
• In Europe 7 out of 12 markets are trading modestly higher : CAC +0.21%, DAX +0.26%, FTSE -0.43% at 6:00 am CT
• Fair Value: S&P -10.30, NASDAQ -13.41, Dow -107.00
• Total Volume: 1.64mil ESZ and 17.5k SPZ (all spreads).
• Economic calendar : Housing Starts, Jobless Claims, Current Account, Philadelphia Fed Business Outlook, EIA Natural Gas Report, 2,5,7 Yr-Note Announcements, FOMC Meeting Announcement and Forecasts at 1:00 CT, Fed Chair Press Conference, Fed Balance Sheet and Money Supply.

[s_static_display]