Yesterday the Dow Jones futures (YMM17:CBT) fell 249 points, or 1.1%, to 20610, posting its worst day since September. The S&P 500 futures (ESM17:CME) fell 28.50 points, or 1.16%, to 2341.00, and the Nasdaq 100 futures (NQM17:CME) lost 112 points, or 1.8%, to 5335.00. The KBW (Nasdaq Bank Index) fell 3.9%, having its worst day since the Brexit selloff. The dollar fell to its lowest level in 4 months after reaching a 14 year high after Trumps victory.
They huffed and they puffed and they finally got the S&P down. What started out on a friendly note turned a little ugly during Tuesday’s S&P 500 futures (ESM17:CME) trade. At 8:40 CT the ES traded up to 2379.50 and just after I put this out in the MrTopStep forum:
IMPRO:Dboy:(9:38:54 AM) : seems like there is some selling going on.
I could see the selling filtering in at the highs and expected a pull back, but no way did I see a 35 handle drop coming. Something in a big way was leaning on the stock market from the opening bell down to its early low 2344.50. Why was the stock market so weak? Institutional selling, or bets that House Republicans will not be able to pull together enough votes to dismantle the Affordable Care Act, and doubts that President Trump will be able to push through his tax cut plans.
I put this out just after the low:
11:47:18 TRADINGDATA2: (driley) I think we are at or near the lows of the day and not long after the ESM traded up 2356.25.
I sent this to the PitBull:
11:15:44 TRADINGDATA2: (driley) this has a big stay out sign on it.
Not long after he called me and said that the ‘ES is setting up a right shoulder, everyone is hooked, look at FB all the big names are getting hit.’ The banks were getting crushed and health care stocks were down hard.
Largest Drop Since October
The S&P 500 futures could not hold any rallies, whether it was a 2 or 3 handle rally, or a 12 handle rally. The institutional liquidation kept a lid on the premium levels between the (ESM17:CME) and the S&P cash (^GSPC:SNP). When there is a constant flow of selling, the algorithms pick up on it, and in come the sell programs and sell stops.
The day was literally ‘one big sell program’. After the push back up to 2356.25, the ES was hit by 6 large sell programs that took the futures back down to a new low at 2340.25. From there they made a ‘double top’ at 2349.50, sold off, made a few lower highs and then got slammed down to 2338.00 going into the 3:00 cash close, and a level I put out a few hours before the late day sell off. It was a long time coming.
From the Stock Trader’s Almanac
Today the S&P 500 ended its daily streak of trading days without a 1% or greater decline at 109. Since 1950, there are only 9 other S&P 500 streaks of this duration or longer. The longest streak was 184 trading days in 1963. The average gain during the past 9 streaks was 15.16%. S&P 500 fell short of this mark this time at 11.30%. Compared to S&P 500 streaks lasting 89 trading days or longer this list has six fewer and shows additional weakness 3-Months after the streak ended.
The chart above is the average performance of these past 9 streaks 30 trading days before the streak ended and 60 trading days after comparing 79 trading day and longer streaks to 89 day and longer streaks to 109 trading days and longer. Weakness near the end of the chart, 60 trading days is approximately 3 calendar months later.
Arguable today’s retreat was overdue. Perhaps it was due to some early end-of-quarter profit taking and portfolio restructuring triggered by President Trump’s slipping approval rating and the possibility that health care reform may not happen as quickly as promised. This potential failure has led to speculation that other Administration major policy changes such as tax cuts and infrastructure spending roll out will be delayed or worse yet, not happen at all. It seems like a stretch at this point to jump to the conclusion that the Trump Administration is not going to have any success. We believe the market is still on track for double-digit full year gains and DJIA could still easily reach 23,000 to 24,000 by yearend.
While You Were Sleeping
Overnight, global equity markets were weak following the rout on the Wall Street, as every Asian market closed lower and all European markets are currently in the red. The S&P 500 futures opened at 2340.50 and made a quick high of 2341.50, and was weak from there. The futures traded down to 2332.25 early after the Euro open, but has since bounced back to the globex open, and as of 5:57 am cst has last printed 2340.75, down 1.5 handles, on volume of 208k.
In Asia, 11 out of 11 markets closed lower (Shanghai -0.50 %), and in Europe 11 out of 11 markets are trading lower this morning (DAX -0.76%). Today’s economic calendar includes the MBA Mortgage Applications, FHFA House Price Index, Existing Home Sales, and the EIA Petroleum Status Report.
Health Care And Tax Cut Doubts
Our View: With the stock market trading at record high evaluations, and so much uncertainty surrounding Trump’s initiatives, the S&P ‘choked out’ yesterday. People are concerned about whether the health care bill will pass, and from the way it looks, it may not. As I write this it’s 4:30 am CT, and the ESM has traded down to 2332.25 with 195,000 contracts traded, and is trading just a few ticks off its overnight high at the 2340.00.
The big question is, was the sell off a one day wonder, or a blunder? My gut says this is not over, that doesn’t mean the ES can’t rally, but with so much uncertainty it’s hard to believe the stock market will just shrug off all the selling. It may take a few days, and even then the S&P’s will have to get past the health care vote, and the end of the quarter rebalance.
Our view; the ES tends to go sideways to higher after a big down day. That doesn’t mean there will not be a retest of the Globex lows. Sell the early rallies and buy weakness.
PITBULL: CLK -17/-20 TURNS DOWN ON A CLOSE BELOW 4722, ESM OSC -7/6 TURNS UP ON A CLOSE ABOVE 238369, VIX OSC -1/0 TURNS DOWN ON A CLOSE BELOW 1076.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 11 out of 11 markets closed lower: Shanghai Comp -0.50%, Hang Seng -1.11%, Nikkei -2.13%
- In Europe 11 out of 11 markets are trading lower: CAC -0.83%, DAX -0.76%, FTSE -0.91% at 6:00am ET
- Fair Value: S&P -3.89, NASDAQ 1.67 , Dow -57.98
- Total Volume: 2.56 mil ESM and 4.8 k SPM traded
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