Friday’s trade was pretty much all over the place. The ES opened lower, sold off hard down to 2103, bounced all the way back up to 2115, and made 3 separate lows at the 2103.00 area. The trade was back to the same old news drag: Greece securing a financial deal with international creditors, a slumping economy and last but not least, the Federal Reserve’s timetable for raising interests rates. The German DAX that started out modestly higher closed down -2.3% and the French CAC closed down -2.5%
MAY: Slowest Month of the Year
May ended being the slowest trading month of the year. Friday’s volume was the highest of the month, with over 45% of the day volume trading in the final minute, as traders rebalanced positions on the last trading day of the month. Despite the sluggish trade, both the Dow and the S&P eked out +1% gains with the Dow making two separate record highs and the S&P making four. On Friday’s close the S&P futures (ESM15:CME) closed down -15.70 points, or -0.60%, the Dow Jones futures (YMM15:CBT) closed down -125 points, or -0.60% and the Nasdaq futures closed down -0.50%, or -31.80 points. The VIX traded at some of the lowest levels seen since the credit crisis.
The ESM was weak overnight, and then a weak GDP, and a weak Chicago PMI, seemed to set the early tone. As the futures fell the ESM15 started hitting sell stops under 2112, but accelerated when the ES traded under 2108. Throughout the day, you could see that not that many people were trading. In the afternoon, the MiM started out showing small to buy, and flipped hard to the sell side just seconds before the 2:45 CT cash close. It was an extremely slow week that again provided traders with several stops and gos. The S&P futures looked great on Thursday’s close when they shot out to 2122.00. Many momentum players bought the close only to have the futures reverse lower on Friday.
JUNE 5 Greek / IMF Payment
During Friday’s trade there was a report that Greece was going to try and come up with a plan to pay international creditors the $300 million coming due. For months we have taken the stance that there will be an eventual Greek default. On Sunday night, Greek leaders, German chancellor Angela Merkel, and France’s François Hollande held a telephone call to discuss the situation. All three leaders reiterated the need for a quick agreement, according to one official in Athens. Greek prime minister Alexis Tsipras blames the European Central Bank and the International Monetary Fund for pushing absurd proposals. On Friday Greece said that it had “internal resources” to meet its June 3 €305m (£220m) payment to the IMF, but did not say they would make the payment. Instead they said that a “technical solution” could be made in a few days. José Manuel Barroso, the former European commission president, warned on Sunday that it was vital to find a solution quickly. He told the BBC’s Andrew Marr show: “Sometimes I get the impression that people are waiting for an accident so that they can really focus [on] avoiding a bigger disaster. It’s too long, this time that has been taken to find a solution. I believe it’s important now to find that solution.”
The way we see it, is that the Greeks talk a lot, but are not going to deliver. We do not think they ever have, and nor are they ever going to do a deal in good faith, and that the situation is nearing a head. Maybe after the Greeks default the DAX will bottom.
In Asia 6 out of 11 markets closed lower (Shanghai Comp. +4.71%) and in Europe 6 out of 12 markets quoted are trading modestly lower this morning. This week’s economic calendar is busy, it includes 23 separate economic reports, 9 T-bill or T-bond Auctions or announcements, 5 Federal Reserve Banks presidents speaking, International Trade on Wednesday and the May Jobs report on Friday. Today’s economic calendar starts with Personal Income and Outlays, Eric Rosengren speaking from the Fed, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, and the Gallup US Consumer Spending Measure.
FADE GAME
Our View: Looks good? Sell it! Looks bad? Buy it! As stupid as that sounds that’s how it works. It is a total fade game. Everyone starts to get bearish, and the ES sells off a little, and in come the naysayers. It’s quiet now and volume is low but that can only last so long. While I still believe the risk is to the upside, I don’t think all the “churning” is good for the markets. Our view is to sell the rallies and buy weakness. We think the first trading day and first week of June will be up.
Sell In May Second Best Month of the Year
- In Asia 6 of 11 markets closed lower: Shanghai Comp. +4.71%, Hang Seng +0.63%, Nikkei +0.03%
- In Europe 6 out of 12 markets are trading modestley lower: DAX -0.05%, FTSE -0.04%, MICEX +1.78% , GD.AT -1.44% at 5:45 CT
- Fair Value: S&P -1.96 , Nasdaq -0.80 , DOW -14.59
- Total Volume: Better 1.69 mil ESM and 8k SPM traded
- Economic calendar: Personal Income and Outlays, Eric Rosengren speaking from the Fed, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, and the Gallup US Consumer Spending Measure.
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