The S&P 500 futures fell 51.25 points from its Tuesday morning globex session high of 1907.50 down to 1856.25 during the regular session. On the close the ESH16 was down 0.25 points, or -0.07%, the Dow Jones futures (YMH16:CBT) closed 6 points higher, or +0.03%, and the Nasdaq 100 futures (NQH16:CME) closed unchanged on the day trading at 4145.75. Clearly, selling the gap up opens in 2016 have been a very profitable trade.
Like the title of today’s Opening Print: ‘No News is Good News in 2016’. Despite China’s GDP number coming in weaker than expected the global markets rallied. In Asia the Shanghai Composite closed up +3.22%, Hang Seng closed up +2.07% and the Nikkei closed up +0.55%. In Europe the CAC closed up +1.97%, the DAX closed up +1.50% and the FTSE closed up +1.68%, all substantial gains. The ESH16 followed the global markets higher but seemed to use all its buying power up before the 8:30 CT futures open, and it turned into a case of ‘no where to go but down’
Defaults and S&P Ratings
The continued drop in oil prices is creating damage in many places of the world but it’s particularly affecting the slow growth in Russia and Venezuela. Both economies were already in bad shape, but the sanctions on Russia and Saudi Arabia shows what happens when you have no growth, and at the same time have economies that are dependent on oil production and sales. With crude oil trading under $30.00 it may be weighing on the US economy, but there is a silver lining, lower fuel prices at the pump that is. While both Russia and Saudi Arabia have financial reserves, the Venezuelan lack of gross domestic products and constant political instability could thrust that nation toward its financial collapse. In response the Standard & Poors has reacted by lowering Russia’s junk bond level to triple B minus and Venezuela’s to a near triple C default. While many traders continue to look for a low, or a larger bounce in the S&P ( down over -8.5% in the first 11 trading days), based on crude oil prices and the ongoing currency wars it might be too early to start bottom picking.
The way things work today is everything is geared toward China. When China buys less oil because of slowed growth, at the same time when Saudi Arabia continues at record production pushing out cheap oil all over the world, and with the Iranian sanctions lifted, all this means it’s unlikely that things are going to change anytime soon. The overall effect of the drop in oil has been the main driver of the stock markets down move. Yes, China and the threat of higher rates has spooked the S&P lower, but until crude oil makes a low, volatility will remain high. The US is not as oil depended as it used to be so eventually the S&P will shake off the energy weakness but we do not think we have seen the low in the oil markets yet, and neither does the EIA Administrator Adam Sieminski as he noted today at a Senate Energy Committee meeting that oil may reach $20 a barrel before rising again.
In Asia, 11 out of 11 markets closed sharply lower (Hang Seng -3.82%), and in Europe 12 out of 12 markets are trading sharply lower (DAX -3.02%). Today’s economic calendar includes the MBA Mortgage Applications, Consumer Price Index, Housing Starts, Redbook and key earnings from Goldman Sachs (GS) and ASML Holdings (ASML).
Our View: The ESH drops and then rallies, but fails to hold any significant ground, and ultimately drops again. I think there is a possibility the ES fills the 1831 downside gap the PitBull has been talking about. This week’s economic focus will be on the housing market, earnings, and the oil markets that are still noticeably weak. It’s just after 10:00 PM, the CLF6 is breaking the $28.00 level, and the ESH16 is down 15 handles to 1857. Until the energy sector starts to move back up the drag on the S&P will continue…Now it’s 5:00am and the ESH traded down to 1829.25 and the CLF6 traded all the way down to 27.32. Our view, we lean to buying the early weakness and selling the rallies. 1831, 1820 and ESH 1800.00 is on TAP.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 11 out of 11 markets closed sharply lower : Shanghai Comp -1.03%, Hang Seng -3.82%, Nikkei -3.71%
- In Europe 12 of 12 markets are trading sharply lower: CAC -3.28%, DAX -3.02%, FTSE -3.02% at 5:15am CT
- Fair Value: S&P -7.32, NASDAQ -9.26, Dow -85.08
- Total Volume: 2.8mil ESH and 5.7k SPH