Yesterday, the fast moving index futures markets of the CME Group (CME) slowed in front of today’s Jobs report. With Asia closing mostly higher, and the European markets closing mixed to weak, the US markets continued its grind higher. At the end of the day the S&P futures (ESH16:CME) closed down 2.75 points, or +0.09%; the Dow Jones futures (YMH16:CBT) settled at 16314, up 51 points, or +0.31%, and the Nasdaq 100 futures settled at 4147.50, down 24 points, or -0.58%. The US markets eked out small net changes due to the dollar softening on top of gains in the materials and industrials sectors. Crude oil futures(CLH16:NYM) fell -1.7% after a big reversal lower as traders are starting to doubt any major production cuts and gold futures (GCJ16:CMX) jumped up to $1,157.50, up 14%, to its highest close since October 28.
The Battle Continues
There is no doubt that the end of 2015 and the beginning of 2016 have been a battle. Even on a slower day like yesterday 2.24 million ESH16’s traded. There has been a giant leap in algorithmic and HFT / program trading over the last several weeks across all sectors. Clearly the robots have upped their game as the volume has increased. In doing so they have stretched out the daily trading ranges taking things from a downside extreme on Wednesday back to an upside extreme on Thursday. It feels like everything is winding up for today’s jobs report.
There seems to be no shortage of news out of the Middle East and Europe and most of its is not good. Crude oil popped all the way back up to 33.60, and when it started to slide the ESH16 sold off with it, but the ES shook off the oil weakness and staged a small short covering rally late in the day. The overall level of trade seemed lower but the S&P overall tone seemed to improve as the day wore on with the ESH back and filling at the 1897 level.
This mornings jobs report should show that ‘fewer’ Americans found work in January than they did in December, but that doesn’t necessarily mean today’s number will be a reflection of the entire year. In December, 292,000 jobs were created, which surprised Wall Street. The increase in jobs was probably tied to the holidays which should mean a lower job creation in January. According to the Bureau of Labor Statistics there have been 10 occasion since 2010 that the economy has created 290,000 jobs, and in each case net job creation in the following month fell by an average of 126,000. Expectations for today’s jobs number is following the pattern with an expected 180,000 jobs created in January. 180,000+ jobs will be seen as a good number and anything below could be a big negative for the S&P. Either way MrTopStep is sticking with one of its key trading rules; Counter Trend Friday.
In the end, 2016 has been filled with some big ups and down, and we do not expect today to be any different.
In Asia, 7 out of 11 markets closed higher (Shanghai Comp -0.63%), and in Europe 12 out of 12 markets are trading higher (DAX +0.08%). Today’s economic calendar includes the Employment Situation, International Trade, Baker-Hughes Rig Count, Consumer Credit, Treasury STRIPS, and earnings from Cme Group Inc (CME), Estee Lauder Companies Inc (EL), Moodys Corp (MCO), and Tyson Foods Inc (TSN).
Counter Trend Friday and the US Jobs Report
Our View: Looks can be deceiving but if I had a gun to my head I would say the ES is going back up to the 1930 level. I am not saying the S&P will hold, but there are a lot of buy stops building up above 1918.70 all the way up to 1928. On the downside I have 1870 to 1873 as support. Is it possible we see both sides? Based on how things are going, nothing can be ruled out.
Our view is that we are looking for a MrTopStep ‘Counter Trend Friday’.
COUNTER-TREND FRIDAY: Over the years this trade works best on monthly NFP jobs Friday when the S&P futures gap sharply higher or lower on oversized pre-market Globex volumes of +400k ES contracts before the 8:30 am CT open. This is a fade, “the bus is too full” type trade. Example: The S&P is down 6 handles at 6:00 am and then down another 8 or more handles after the jobs number is released. Now, the S&P is down 14 handles or more at the 8:30 am open. With 400k+ minis traded before the open, this tells us that traders have already voted (sold). Depending on the price action, the idea is to buy a sharply lower open or allow for another 2-4 handle drop just after the open. The idea behind this is that with so many minis traded and it being a Friday and knowing most traders can’t hold the futures over the weekend, they put in buy stops and the algorithms go right for the buy stops. With all the selling used up pre-open, the ES will start to short cover into the buy stops that lift the offer side of a buy program.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets closed : Shanghai Comp -0.63%, Hang Seng +0.55%, Nikkei -1.32%
- In Europe 12 of 12 markets are trading : CAC +0.51%, DAX +0.08%, FTSE +0.45% at 6:30am CT
- Fair Value: S&P -5.96, NASDAQ -5.63, Dow -81.26
- Total Volume: 2.2mil ESH and 3.4k SPH
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