When the US Federal Reserve said they were almost out of cash during the height of the credit crisis what did they do? They decided against a long term solution and initiated QE1, QE2 and QE3; buy bonds and print money. It worked… The S&P that traded down to 666 in March of 2009 traded up to 2119.75 on Tuesday. The ES started to weaken on Wednesday, then rallied, and basically did the same thing Thursday; open lower, sell off a little, and then slowly creep higher. That changed Friday morning when the DAX was down over -2.5% and the S&P futures (ESU16:CME) opened 15.50 handles lower, or -0.75%, at 2098.50.
The S&P futures have now rallied 314 handles (points), or + 14%, since making the February 11th low, and have ‘stopped short’ of its 2134 contract high set on May 21, 2015. Despite the threat of higher rates and a weaker jobs report, the markets took that bad news and made good of it. I believed for several years that’s how it works in a zero or negative rate environment. All the IPO’s and stock buybacks take advantage of the cheap money. Like the big party on Wall Street that we were not invited to, but had to pay for, the big IPO’s and stock buybacks are also joining the party, but they are entering at a very late stage. I don’t need Bill Gross or George Soros to tell me things are not right. I am and ex floor / street guy. I was there in the 87 Crash, I was there in the tech bubble, I was there when the ruble collapsed, I was in Asia during the Asian currency crisis, I was there for 9-11, I was there for Gulf War I and II, and I was there for the FLASH CRASH.
A long time ago when I bought my first home in downtown Chicago, I befriended and helped a guy off the streets. When we bought the house, a well known real estate broker told us not to move into the neighborhood, that there was too much crime and the housing projects. One day, my friend and I were outside working on the garage, my friend ‘Black Mike’ said you know they are going to steal your deck furniture and break into your garage. What I said back to Black Mike surprised him, I said “I know they are coming Mike, I just don’t know when.” Mike laughed and said I was right, and thats how I feel about the current economic conditions. At the end of the day we live in an ever shrinking world where the major economies are either broke or printing money. Get long gold and sell stocks like George Soros? I am not sure it will be that easy.
In Asia, 11 out of 11 markets closed lower (Shanghai -3.21%), and In Europe 11 out of 12 markets are trading lower this morning (DAX -1.23%). This week’s economic calendar features the two day Fed meeting, 23 economic reports, and 14 U.S. treasury events. Today’s economic calendar is light and includes a 4-Week Bill Announcement, a 3-Month Bill Auction, and a 6-Month Bill Auction.
Our View: The stats for the June Quad Witch are extremely bullish (https://mrtopstep.com/wp-content/uploads/2016/06/exp6_FirstTwo.pdf). You can take it from there. It looks like buying has dried up over 2100 and sellers began to break down price. How low can the bears push the market, especially on expiration week? The answer is, I am not sure. Our statistics show that it’s not unusual for the PitBull’s Thur/Fri low to be exceeded the Monday of options expiration week and then rally from there. Will they? I don’t know, but the stats are positive, and at some point these Brexit fears will be relieved or priced in. Our view is to sell the rallies looking for 2100 to maintain resistance and to keep an eye open for dip to buy. Remember, it takes days and weeks to push the S&P 500 futures lower but only one day to bring it back higher.
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 -3.21%, Hang Seng -2.52%, Nikkei -3.51%
- In Europe 12 out of 12 markets are trading lower: CAC -1.45%, DAX -1.33%, FTSE -0.71% at 6:30am ET
- Fair Value: S&P -9.62, NASDAQ -9.85, Dow -107.80
- Total Volume: 1.8k ESU and 15.8k SPU traded (mostly spreads)
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