After a noticeable intraday reversal on Wednesday, the S&P 500 futures bid higher overnight Thursday, trading up to 1938.50 before falling back to open the cash session at 1931.50. From there, the ESH16 found an early low of 1922.00 before chopping much of the morning, and then breaking out just after noon CT as the futures rallied to close the day at 1950.50 (up 18 handles from Wednesday’s close and 28.50 points from the intraday low). Total volume was 1.8 million, as it appears that T+3 and the end of the month rebalancing is favoring stock buying, and as the equity indexes recovered from weakness to appear to be in dip buying mode.
Following a volatile January and early February, the volume and volatility are both settling down and the indices are starting to make a push to levels not seen since early in the year. In fact, yesterday the S&P futures closed at its highest price since January 6th, as global fears seem to be subsiding while the markets enter into what are historically stronger and quieter months. For the moment, it also appears that the market regards the February lows retest as a relevant double bottom; and with stocks marked down, traders want to continue to take a stab at buying cheap. However, these same fund managers saw the S&P 500 overvalued at 2100 last year, and it’s likely that after seeing a year that seemed to top out in 2015, that 2016 will continue in a sell-the-rallies mode. The question becomes, where does the index overvalue this year? We have been noting some of the big round levels in the futures since last August’s sell-off, and we continue to look at 1950, 2000, 2050 and 2100 as potential resistance/pivot zones. Our belief is that while stocks may maintain a rally during the spring, that these rallies will be limited, giving way to an extended range in a similar fashion to last March/April. Then when the “sell in May” bears come along on top of the low volume, this would pave the way for new sellers below 1800.
I have not become bullish, but have to realize that no market goes straight up or straight down; and that with global economic concerns, potential Fed action, and U.S. Presidential elections later this year, we are in for a long trade. Given this, we will be continuing to watch the end of month rebalance for clues, as well as the 1950 level, which in reality should be a signal marker for any bears that remain in this market. Above that is 2000, which should be resistance on first touch.
Overnight, futures have traded up to 1968.75, up 18.25 points, as worldwide markets are rallying behind the S&P. The key to higher prices will be if bulls can safely retest 1950.00, find support there, and build a floor.
In Asia, 10 out of 11 markets closed higher (Shanghai Comp 0.95%), and In Europe 12 out of 12 markets are trading higher this morning (DAX +1.38%). Today’s economic calendar starts with GDP, Personal Income and Outlays, Consumer Sentiment, Jerome Powell Speaks, John Williams Speaks, Baker-Hughes Rig Count, and Lael Brainard Speaks.
Our View: I have always said, “do not fall in love with your positions,” and this piece of advice is as relevant now as it’s ever been. These markets have done an excellent job of confusing traders and sucking them into the wrong side. Just when it appears that sellers are ready to gain momentum, the buy programs enter, and when it appears that buyers are in control then strong sell programs enter the market. With two days remaining in the month our view is that the equity markets are not going to go straight up or down but will likely be up a day, down a day or vice versa.
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 +0.95%, Hang Seng +2.52%, Nikkei +0.30%
- In Europe 12 of 12 markets are trading higher: CAC +1.37%, DAX +1.38%, FTSE +0.89% at 6:00am CT
- Fair Value: S&P -2.55, NASDAQ -2.32, Dow -25.33
- Total Volume: 1.8mil ESH and 6.3k SPH
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