Last week was a choppy range for the S&P 500 futures. The weekly range traded inside the prior week’s high and low. Neither the bulls nor the bears were able to take over and control the price action during the October option expiration. Monday looked weak early on trading down to 2116.75. The high of the week was made on Thursday at 2144.50 before settling at 2134.75, up 7.75 handles, or .33%. Throughout the week it was clear the the 2140 area, and above, was filled with resistance from what was the bottom of the range for the later part of September.
On Friday, the S&P looked weak going into the open and dipped to open at 2125.25, down 11.75 handles. The ES proceeded to quickly make a low of 2123.25 before buy stops ran the benchmark futures index higher, maintaining a bid throughout much of the morning into the afternoon. Eventually a high of 2136.75 was made, paring away the globex losses.
Earnings On Tap
Going into this week, the calendar features some noticeable earnings, especially from Nasdaq flagships such as AAPL, GOOG, and AMZN. The equity markets are preparing for the last full week of the month, and T+3 into the month end. The resistance area at 2140 and support area below 2120 are creating a chop on this market that, as equities rebalance in the the end of the month, could begin to work itself out.
November begins the best six months of the stock market. With bears unable to take this market down, there could be a strong rally to new highs as the election becomes far more of a known, as well as the impending expectation of an interest rate hike in December. However, it’s hard to image the S&P breaking down again without there being some follow through. As I often say, “the market will do what screws the most of the people.” We have to at least be open to considering another run to the Autumn lows that could lead to follow through.
While You Were Asleep
Overnight global equity markets traded higher. The S&P futures opened the overnight trade at 2137.00, traded as high as 2139.75 before the Tokyo open, then fell back to 2134.75 just after the Tokyo markets opening. The session low was made before rallying into the Asian close, and then saw larger gains as Europe came online. The ESZ traded up to 2147.50, more than 10 handles from the globex open, and exceeding last week’s high. Currently the S&P has traded four handles off that high. The last print as of 6:30 am cst is 2144.25, up 8.25 handles on the day, with overnight volume at 115k.
Heading into today’s open there are some economic indicators and Fed speak on tap, but the real question now becomes S&P 2150. With the bid up overnight, any upside today, on what should be a slow session, will likely be limited. The question will be the same as it always is, can bears create any momentum?
From Barclays:
New York Fed President Dudley (FOMC voter) speaks: Dudley makes introductory remarks to event on the evolving structure of the US Treasury market. We do not expect substantive monetary policy content.
St. Louis Fed President Bullard (FOMC voter) speaks: Bullard delivers remarks on US economy and monetary policy. Despite his new monetary policy framework, we consider him to be among the hawks since he views the economy near mandate-consistent levels. We expect him to call for a rate hike before year-end.
Chicago Fed President Evans (FOMC non-voter) speaks: Evans will hold a discussion of current economic conditions and monetary policy. Evans remains dovish and we expect him to repeat his recent theme that, although he would prefer to wait before hiking rates again, one move would not seriously affect the near-term inflation path.
Board Governor Powell (FOMC voter) speaks: Powell will deliver comments at an event on the evolving structure of US Treasury market. We do not expect substantive monetary policy content.
*Times reported are local NY time.
Looking Ahead
In Asia, 9 out of 11 markets closed higher (Shanghai +1.21%), and in Europe 9 out of 11 markets are trading higher this morning (DAX +0.81%). This week’s economic calendar features GDP and 23 other reports, 5 Fed Speakers, and 11 U.S. Treasury bond/note/bill events. Today’s economic reports includes Motor Vehicle Sales, Gallup US Consumer Spending Measure, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, a 4-Week Bill Announcement, a 3-Month Bill Auction, and a 6-Month Bill Auction.
Our View: The S&P has already traveled up over 12 handles in the overnight session. As quiet as this market has been, it looks like selling an early rally offers a fair risk reward scenario when the ES is up this much early. Bulls will need to make sure that the top of Friday’s range holds as support leading to a trade above 2150 this week. Our call is to sell the early rally and buy the morning to midday weakness, and let the “mutual fund Monday” bid press it up.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed higher: Shanghai Comp +1.21%, Hang Seng +0.98, Nikkei +0.29%
- In Europe 9 out of 11 markets are trading higher: CAC +0.70%, DAX +0.81%, FTSE +0.18% at 6:00am ET
- Fair Value: S&P -6.05, NASDAQ -7.69, Dow -83.95
- Total Volume: 1.4m ESZ and 6.5k SPZ traded
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