Nothing goes up forever, but that’s not how the S&P 500 futures (ESU16:CME) are acting. After making a 1981 low at the height of Brexit on June 27th, and what many traders were comparing to the fall out of Lehman during the US credit crisis, the S&P is up over 10% in 7 weeks. Backed by a wave of better than expected earnings and job reports, the S&P has not only rallied sharply, it also has had few pull backs.
Yesterday the S&P gapped higher off the 8:30 CT futures open, down ticked, and then started grinding higher. The day started with only 123,000 ESU16 futures contracts trading on Globex. The low volume continued right into the day session. There was no major news out, it was just a slow grind higher.
Monday I wrote about how awful the market timers have been calling for market corrections and crashes. As I write today’s Opening Print billionaire investor George Soros is back in the news. According the regulatory filing Soros has increased his short position in the S&P 500 reporting put options of almost 4 million shares of exchange traded shares that track the index. The increase in in the position size is up from 2.1 million shares as of the end of March.
Soros has not specified when those positions were placed, what “strike” price, nor when the expiration date is. Yesterday Soros said he is continuing to unwind his positions in China, which he put on at the center of the Asian financial crisis.
One of the things we have learned about from the aftermath of the credit crisis is that just about every well known trader, hedge fund, bank, prop trading firm and market timer has called for a top. It’s difficult for me to look at what some of these well knowns did in the 1987 crash vs today. I can’t help but think that some are just calling for highs because they refuse to adapt to the “new world order” of investing with the the use of quantitative easing tools. I know I talk a lot about this but I just don’t get how they have not, or still refuse, to adapt. The markets have been following the same pattern for at least the last 5 or 6 years. They sell off a little and then rally hard.
I know that there is going to be a stock market sell off. There has to be. That said, as day traders, we are more interested in the ‘here and now’ than we are by all the talk of what someone did 20 or 30 years ago. The idea of calling out a +50% correction, even if it happens, is not going to help anyone today. It makes perfect sense to take some profits while the S&P has gone up so much and is sitting at new all time contract highs. That’s what smart traders are supposed to do. I just don’t see how continually calling for crashes helps traders. With the markets up so much I am sure we will know it when the time comes.
Overnight global equity markets actually traded weaker through both the Asian and European sessions. The ESU16 remained offered throughout the globex session making a 2181 low late in the Asian session before bouncing back to 2186.00 early in the European session. Since then it has made a higher low at the 2181.75 level, and is currently trading at 2183.00, down 3.25 handles from yesterday’s RTH close. Volume has been better with 100K contracts traded as of 5:45 am cst.
Today’s calendar has some noticeable reports, but I am not sure they will be market moving. I think what may pull the market out of this tired range could be tomorrow’s FOMC minutes, and even then the reaction likely won’t be too exciting. The last two globex lows have come in at the 2181 level, so that is important to the downside, as well as 2177.
In Asia, 9 out of 11 markets closed lower (Nikkei -1.62%), and in Europe 11 out of 12 markets are trading lower this morning (DAX -0.66%). Today’s economic calendar includes the Consumer Price Index, Housing Starts, Redbook, Industrial Production, E-Commerce Retail Sales, a 4-Week Bill Auction, a 52-Week Bill Auction, and Dennis Lockhart Speaks.
Our view: The S&P cash study goes from a very positive Monday of being up 23 / down 9 of the last 32 occasion and a 6 handle gain to a 50% day of up 16 / down 16 of the last 32. It’s all a big guessing game, but with the stats not being favorable, I lean to selling rallies. I also think the closer the S&P gets to 2200 the more likely a pull back may occur. Our view, we lean to selling rallies and buying weakness but with a downside bias for the day. We have to go down a little to add more buy stops above for Friday’s expiration. Lastly, I think crude is within $1.50 from its current high of $45.90.
Download all of the August expiration stats here
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 9 out of 11 markets closed lower: Shanghai Comp -0.49%, Hang Seng -0.09%, Nikkei -1.62%
- In Europe 11 out of 12 markets are trading lower: CAC -0.57%, DAX -0.66%, FTSE -0.42% at 6:30am ET
- Fair Value: S&P -2.88, NASDAQ -0.79, Dow -45.37
- Total Volume: 1.1mil ESU and 2.4k SPU traded
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