Last week we noticed the potential for volatility with the Fed, Bank of Japan, mid-month rebalance and quad witch all correlating together. However, what we got was one one of the quieter weeks, and some of the quietest sessions we’ve seen in a while. The markets brushed aside any potential volatility and continued their march higher marking the S&P 500’s fifth consecutive weekly close. This rally has seen the S&P take out the 1950 and 2000 levels, and is now just a morning’s trade from 2050, and a week’s trade from 2100.
The March post expiration week stats are weak, this coincides with a general trend the last two years for the equity markets to run higher into options expiration and then trade choppy for the rest of the month, if not pull back into month’s close. There has also been some tendency for the markets to run higher into FOMC days, as we saw last week, and then trade lower the next two weeks. But having laid the case for some bearish stats, I’ll admit that this bullish tape is hard to fight.
On Friday the equity only put/call ratio closed at its lowest level in quite a while. At the same time the volatility index (VIX), short term VIX (VXST), and volatility futures (VXK6), all traded at or near their lowest levels since before the August 2015 correction. This tends to indicate a relatively low level of fear in the markets, but there is an old adage, “when the VIX is low, it’s time to GO!”
For the “fear” index to be so low, is it really in tune with where real sentiment is, or should be? Last year, the Bank of America/Merrill Lynch Hedge Fund Monitor noted that there was an extreme amount of short interest in the equity markets among institutions with the cash index above 2050. As heavily short as they were, their stops were not run, and they maintained their positions on every retest. The price action above 2050 last year was very pessimistic for bulls. The market shows its first real signs of being top heavy at these levels.
Fast forward to 2016. What do we expect to be different? Should the markets be more optimistic above 2050? Last year 2050 was the lower area where sellers began to control the index, this was during a market that was built on the notion to BTFD (Buy The F’ing Dip). Without market corrections it was easy to BTFD, but now the market should be more hesitant than to merely buy the dip with blind eyes. There have been two 10% lower moves in less than eight months time, and in 2016 there is continued concern over monetary policy, global and U.S. economic/recession fears and an impending Presidential election in the United States. As the S&P continues the march around the 2050 area we see a repeat of last year. The volume getting lower and lower on the way up before buyers are stuck and it leads to a wave down.
Overnight the ESM16 traded lower by 7 handles, down to the 2031 price early in the Asian session, before reversing higher on the Euro open and trading up to 2044.25, exceeding Friday’s high by 1.5 points, a 13.25 point rally. Currently the futures are trading back near Friday’s contract close at 2038.50. We have said before that the market is resilient right now and the price action continues to favor dip buying. Later in the week, heading into Passover/Good Friday, there is a likelihood that the volume will slow down and turn into more of a thin-to-win environment.
In Asia, 6 out of 11 markets closed higher (Shanghai Comp +2.15%), and In Europe 8 out of 12 markets are trading lower this morning (DAX +0.46%). This week’s economic calendar features 26 economic releases, 6 Fed speakers, 11 Treasury events and Good Friday. Today’s economic calendar includes Jeffrey Lacker Speaking, Chicago Fed National Activity Index, Existing Home Sales, 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction, Dennis Lockhart Speaks, and James Bullard Speaks.
S&P 2050
Our View: Today’s calendar features the existing home sales and includes some Fed speak. As hard as it is to buy this market, selling it is still not working, so despite the stats we have to lean to a choppy grind higher until the price action shows differently. This means that the big 2050 area in the ESM16 is a magnet, and we expect at least a test of that area early this week. The levels we will watch in addition to 2050 are Friday’s high/today’s globex high area of 2042.75 – 2044.50, and today’s globex low/Friday’s low area 2031-2027. If sellers are going to control the tape they must resist at the upper area while pushing the close below the lower area. However, until they do, we continue to look to buy the early dips.
As always, please use protective buy and sell stops when trading futures and options.
MrTopStep Closing Print: March Quad Witch After Market Report
- In Asia 6 out of 11 markets closed higher: Shanghai Comp +2.15%, Hang Seng +0.06%, Nikkei -1.25%
- In Europe 8 out of 12 markets are trading lower: CAC -0.23%, DAX +0.46%, FTSE -0.06% at 5:30am CT
- Fair Value: S&P -9.66, NASDAQ -10.70, Dow -102.80
- Total Volume: 1.7mil ESM and 7.1k SPM traded
[s_static_display]
No responses yet