S&P 500 Futures 2172

S&P 500 Futures 2172

When the bets were made over two weeks ago they didn’t have the Federal Reserve’s two day meeting in mind. Trading is like life, you have to have a plan for now, tomorrow, next week and beyond if you’re trying to make money investing. We always talk about how none of the old tools work anymore and that the S&P never does what most people want it to when they want it to. Clearly the quick reversal to the upside in the index futures markets is another good example of both. Old tools that do not work anymore and the public off base going into the fed’s two day meeting.

We never shy away from writing about the markets, but when you look at the overall price action of the S&P 500 futures (ESZ16:CME), nothing has changed. Yes, several big name investors like Carl Icahn, Marc Faber and George Soros have all been calling for a major downside sell off in stocks. But you know what? They too will go down like all the hundreds of well knowns and market timers that have called for the same; a crash of magnificent proportions.

Any News Is Good News

I think it’s fair to say that I don’t know how all the global economics work. What I do know is since QE1, QE2, QE3 and the introduction of either zero or negative borrowing costs, the S&P will sell off hard, but it ultimately returns to new highs. The world is awash with free money, and as long as there are zero rates, the big stock buybacks will continue. Even after the Fed raises rates the S&P will temporally react to the downside, but once that’s over, it will continue higher. Lets face it traders, the S&P has a history of turning bad news into good news.

I, like many, start getting ‘concerned’ about how fast the S&P unraveled, but I also never forget what happens when the S&P starts turning up. One of our rules that we think best applies is that it actually does take days and weeks to knock the S&P down and only one (or 2) to bring it back. Call it the PPT, or the mutual funds buying stocks, the end result is that when the markets go down it allows the big investment firms and mutual funds to be able to pick up ‘cheap inventory’ and use the shorts to help push the markets back up. Is it over? No, I don’t think so. Is the DOW going to close down 1.2% on the week? I doubt that, but we always have the quarterly rebalance at the end of the quarter, and the spooky month of October to get past.

While You Were Sleeping

Overnight Asian markets traded mixed as most of the majors were lower. When Europe came online those markets were offered modestly. The ESZ traded in a two handle range during the Asian session and made the globex high just after the Euro open at 2169.50. Trade shifted to the down side for the rest of the morning. A low of 2163.25, down 5.00 handles, was made at 3:15 am cst. Currently the ES is trading just a tick off that low at 6:45 am cst with total volume at 108K.

Today’s calendar has some noticeable events, but given the slow day yesterday, we are not expecting much more from equities today. There could be some continued offering into the regular session with more profit taking. We are starting to look ahead to next week, which will feature the end of quarter trade and T+3. The week after the September quad witch had been lower in 21 of the last 25 years, but as of now, it looks like the S&P will be going out with one of the top performing weeks of the year.

In Asia, 6 out of 11 markets closed higher (Shanghai -0.28%), and in Europe 10 out of 11 markets are trading lower this morning (DAX -0.27%). Today’s economic calendar includes PMI Manufacturing Index Flash, Atlanta Fed Business Inflation Expectations, Regional Fed presidents panel, Robert Kaplan Speaks, and the Baker-Hughes Rig Count.

Our View

The S&P made a low at 2123.00 last Friday and traded as low as 2127.75 on Monday, 2129.00 on Tuesday, and 2126.75 on Wednesday. As of yesterday the ESZ has rallied 46.50 handles in two days. It’s been a very rough trade, people adjusted lower and now they are chasing the upside. Our view is to sell the early to midday rally. Be patient. Look for a low after 1:00 CT time then wait for the guys with the better seats show up.

As always, please use protective buy and sell stops when trading futures and options.  

• In Asia 6 out of 11 markets closed higher: Shanghai Comp -0.28%, Hang Seng -0.31%, Nikkei -0.32%
• In Europe 10 out of 11 markets are trading lower: CAC -0.54%, DAX -0.27%, FTSE -0.16% at 6:00am ET
• Fair Value: S&P -7.69, NASDAQ -6.75, Dow -92.41
• Total Volume: 1.5mil ESZ and 4.5k SPZ traded

[s_static_display]