How can the S&P be up 32 handles, have $2.4bil to buy on the close, and no one knows about it? On the last trading day of September the S&P 500 closed down 6.9% at 1920.03. DJIA closed down 7.6% at 16284.70. Nasdaq Comp closed down 7.4% at 4620.16 for the quarter. Treasury yields were mixed with the 10-year falling 0.274% to 2.061%. Gold closed down 4.8%, at $1,115.50, and Nymex crude oil is down 24% at $45.09.
Tuesday evening, the S&P futures globex session opened higher by two ticks at 1875.00, and travelled down to 1871 early before rallying hard during the Asian and European session. The (ESZ15:CME) made a globex high of 1900.25 two hours before the regular-trading-hours (RTH) open, putting the index up as much as 25+ handles from the contract open. After falling back a few handles, the futures opened the 8:30 CT cash at 1896.00 and rallied in the opening hour, making a mid morning high of 1907, before sell programs took price down more than 20 handles to make a midday low at 1886.00. During the lunch hour trade, the ESZ found support and began to rally, holding a bid throughout the afternoon and heading into the final hour. The MiM (market-imbalance-meter) showed over $1 billion to buy early, and continued to grow as the MOC (market-on-close) came in at $3 billion to buy. The index futures rallied into the number late in the day, making a high of 2010.50 before coming off into the settle, ending the day at 1902.75.
Last night, globex opened at 1902.50 and rallied 25 handles after the Chinese economic releases mostly came in line or beat expectations, taking the futures up to 1927.50 before trading in a range for the duration of the Asian session, and into the Euro open. For a couple weeks we have been noting in the Opening Print the 3:00 am CT pivot in the S&P futures, and overnight was no exception as the index futures began to fall after the European open, trading back down to the 1909.25 price, down 20 handles from the globex high, and is currently trading at 1912.00 at 7:00 am CT.
S&P Down 2 Straight Quarters
September came and went. It traded in a 150 handle range, and within that range it experienced some noticeable swings. Throughout the month it was reported by BofA’s Hedge Fund Monitor, the Lipper Fund Report, and the CFTC COT (commitment of traders) that hedge funds, mutual funds, and ETF funds had all seen near record amount of outflows, or short interest, as those late to the August sell off scrambled to hedge, or take a net short position. Going into the final day of the month, and given that sentiment had seemed so overwhelmingly short, it was natural that the book squaring would lean toward short covering, or protection buying, and drive index and stock prices higher.
Heading into October, the equity indexes begin to experience what has been a historically volatile month, but at the same time, the month where the highest amount of 52 week bottoms are found. There is room for concern with the earnings forecast having been slashed for the S&P 500, and the persistent uncertainty surrounding the potential action by the Federal Reserve board members to raise interest rates. But then again, it’s something different every year. Last year it was the Ebola scare in October, and while the markets could trade to a new low, at the end of the day we maintain that there will be enough confidence to begin to buy the indexes at some point in the month, marking them back up in a year end rally. While we have been looking for an eventual retest of the August 24th 1831.00 lows, we have not lost the big picture that while October will drag the sentiment overly bearish, eventually the bear killer will begin to run the stops to the upside, and at that point no one want’s to be left out when prices point higher into years end.
Perhaps the parallels between 2011 and 2015 have been overstated, but it’s interesting to note the similarities between the current correction, and the most recent prior correction. The S&P index just closed its second consecutive quarter lower for the first time since 2011, and did so in a very similar fashion. What resulted in Q4 of 2011 was a 10% rally into years end in the face of the Euro crises, as well as the MF Global debacle. Note the comparison of the third quarter of 2011 & 2015 on the daily chart:
In Asia, 10 out of 11 markets closed higher (Nikkei +1.92%), and in Europe 8 out of 12 markets are trading higher (DAX -0.09%) this morning. Today’s economic calendar starts with Motor Vehicle Sales, Challenger Job-Cut Report, Jobless Claims, Gallup US Payroll to Population, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending, EIA Natural Gas Report, 3 and 10 Yr-Note Announcements, 10 Yr-Bond Announcement, John Williams speaks, Fed Balance Sheet and Money Supply.
1926.50 HIGH
Our View: One of the things I think about more and more is how the S&P fakes everyone out. At some point, no matter how smart you are (me included), the S&P will do what most people do not want it to do. Everyone thought it was ‘Lights out London’ on Tuesday, and that the markets would see some type of rebalance to the sell side, and in comes this mammoth ‘Buy S&P / Sell Bonds asset allocation pushing the ESZ from its Tuesday afternoon low of 1869, all the way up to 1910.50 yesterday, and then up to 1926.50 on Globex last night. The way I see it is, the mutual funds sold last Friday, Monday, and Tuesday (T+3), got everyone short into the decline, and then marked up the winners on the last trading day of the quarter yesterday.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed higher : Shanghai Comp. +0.48%, Hang Seng +1.41%, Nikkei +1.92%
- In Europe 8 out of 12 markets are trading higher : CAC +0.71%, DAX -0.09%, FTSE +1.04% at 6:00 am CT
- Fair Value: S&P -9.77 NASDAQ -12.77, Dow -110.16
- Total Volume: 2.2mil ESZ and 8k SPZ
- Economic calendar : Motor Vehicle Sales, Challenger Job-Cut Report, Jobless Claims, Gallup US Payroll to Population, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending, EIA Natural Gas Report, 3 and 10 Yr-Note Announcements, 10 Yr-Bond Announcement, John Williams speaks, Fed Balance Sheet and Money Supply.
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