The great reversal in the index futures markets ended up a reverse of the reversal. The S&P futures that sold off in the final minutes of Friday, and again during the Sunday night Globex session, but then started to turn higher and kept going up. The rally ‘squeezed’ out the sellers that tried to protect in case the G20 could not agree to measures to stem the global weakness, but that didn’t play out, and the ESH16 rallied all the way up to 1956.25. The rally was followed by a selloff all the way off to the Globex low at 1926.50, as the mutual funds ran out of money to mark up stocks, and continued to sell into the final two hours of the last trading day of February and the worst start to a new year for stocks in history.
As MrTopStep has said many times, there are three parts to the 24 hr session. The first part is the Globex session, the second part is the 8:30 CT open and what happens after, and the third part is what what the mutual funds have to do after 1:00. Yesterday was a perfect example of that. The ESH16 rallied during the Globex session, rallied after the 8:30 open and then sold off hard as the mutual funds ‘walked away’ at month end. The selling was exasperated by an early MiM reading of over $1.5 bil to sell. The futures tanked all the way to 1926.50, five ticks under the 1927.75 Globex low. I said on Prescope that I felt the futures would trade down in Globex based on the way the futures closed, and overnight the ES traded down to the 1921 area, and then at 6:00 am the futures traded all the way back up to 1947.75. While the China PMI came in lower than expected the Asian markets closed firm and dragged Europe up in the process, but the other part is what I mentioned later, that the money sold on Monday’s close would be put back to work on the first trading days of March.
As the markets move into the final month of the first quarter the S&P futures have been setting up some higher lows. With crude oil moving up (up to $34.36 on Globex), and seasonal strength showing up in the stock market, many traders are starting to think the February low could be setting up higher prices. Some even think the stock market could be setting up some type of extended rally. Historically the final day of February to the sixth day of the new month tend to be where most of the months gains come from. According to Jeffrey Saut, chief investment strategist at Raymond James, “There’s more history on the market’s side.” Over the past 65 years, the S&P 500 has risen 42 times in March and fallen 24 times, with an average return of +1.06% according to Moneychimp, a financial education website. That makes March the fourth best month for stocks after December, November and April. The average return for February, on the other hand, is a dismal negative 0.05%. In fact, the first five days of March have all posted positive annualized returns going back to 1950.
Annualized returns going back to 1950:
March 1: +68.37%
March 2: + 8.71%
March 3: +27.41%
March 4: +46.98%
March 5: +29.00%
According to Bespoke Investment Group, March tends to be kind to the Dow Jones Industrial Average DJIA, -0.74% too. The Dow posted average gains of 1.36% in March with positive returns 14 of 20 times over the past 20 years:
In the end no one knows for sure what the markets are going to do, but based on the seasonals and how the S&P action is, we still think there is more upside potential. That said, for the S&P futures (ESH16:CME) to move higher, it will need to close above 1960 to get back to the 2000.00 level or higher.
In Asia, 10 out of 11 markets closed higher(Shanghai Comp +1.68%), and In Europe 12 out of 12 markets are trading higher this morning (DAX +1.59%). Today’s economic calendar starts with the Motor Vehicle Sales, Redbook, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, 4-Week Bill Auction, 52-Week Bill Auction, and Gallup US ECI.
Our View: Seasonally we are in a bullish period; the first week of March. So far every rally above 1950 has failed but I do not think it will stay that way this week. There are a ton of buy stops above that go from the 1956 level basically up to 1974. This morning we have a fairly active economic schedule, but after that I think we are going up. Sell the early rallies and buy weakness, or just buy weakness when the ES pulls back.
As always, please use protective buy and sell stops when trading futures and options.
‘S&P 500 Proving Ground’
- In Asia 10 out of 11 markets closed higher: Shanghai Comp +1.68%, Hang Seng +1.55%, Nikkei +0.37%
- In Europe 12 out of 12 markets are trading higher: CAC +0.66%, DAX +1.59%, FTSE +0.69% at 6:00am CT
- Fair Value: S&P -2.30, NASDAQ -1.57, Dow -20.66
- Total Volume: 1.82mil ESH and 7.7k SPH
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