Welcome To The Roll
The story is the story in the futures markets right now; less volume and less trade. CNBC and the likes tend to talk about all the big news stories, but no matter how much they talked, the S&P futures barely moved. We knew going into this week that the calendar was light. The unofficial Summer season had started, and on top of it all, the June contract roll has started. All of this equals a slow environment that doesn’t make headlines, but is becoming a reality as traders try to embrace the chop. Yesterday, the head of Virtu came on CNBC and basically said the algo’s can’t make money in this low volume environment, and that in order to make money the robots need volatility. Well, my advice to him is that the volatility is going to remain low until the fall when the presidential election is in full gear, and to ‘embrace the chop’ just like everyone else.
Overnight equity markets worldwide saw risk off pushing the S&P futures lower. The ESM traded down to 2109.25 before bouncing back to 2112 and is currently sitting two ticks off that price. The roll begins today and the calendar is light. The ranges have been tight this week; 12.75 handles Monday, 8.75 handles Tuesday, and 8.50 handles yesterday. Volume has been declining and only one million contracts traded yesterday outside the roll. More than likely a bulk of today’s volume will be roll volume on another sub 10 handle range.
Through the end of the week we will be looking at the ESM16 price levels. The floor is the 2106-2109 price area followed by 2099 and 2094. Right now the resistance is at 2120. Going into the June quad witch, the S&P seems to be running out of buyers above 2115, as each high is only taken out by a couple handles before sellers come in and whack it down 5 or 10. We are looking for the PitBull’s Thursday/Friday low this week, and the market needs to go lower so it can go higher. My gut feel is that if the S&P’s can get at least a little push lower then it will have enough fuel to try to push to new all time highs during the June expiration.
In Asia, 8 out of 8 open markets closed lower (Nikkei -0.97%), and In Europe, 11 out of 11 markets are trading lower this morning (DAX -1.20%). Today’s economic calendar includes Weekly Bill Settlement, Jobless Claims, Bloomberg Consumer Comfort Index, Wholesale Trade, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 30-Yr Bond Auction, Fed Balance Sheet and Money Supply.
Our View: It seems like ‘endless’ chop in the futures markets right now. As the ESM16 heads into the later part of the week, and the PutBulls Thursday / Friday low the week before the June expiration, the index feels overdone in the short term. For the last few weeks I have been talking about shallow pullbacks, but this morning it has the look and feel of more. As the futures go higher and higher more sell stops have been building up. After trading up to 2119.75 on Globex overnight the futures sold off all the way down to 2100.00 this morning. Overall I think this is a good thing for the S&P. Our view; we lean to buying the early weakness and selling rallies, and based on the overnight trading range, that could mean a retracement of the nightly trading range.The rally is not over, but after a two plus week rally and an over 3.5% move up, things are looking tired. I also think crude oil is nearing a short term top.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 8 open markets closed lower: Shanghai Comp (closed), Hang Seng (closed), Nikkei +0.97%
- In Europe 11 out of 11 markets are trading lower: CAC -0.79%, DAX -1.20%, FTSE -0.83% at 6:30am CT
- Fair Value: S&P -10.41, NASDAQ -9.96, Dow -114.41
- Total Volume: 1.2mil ESM with 200K roll and 6.2k SPM traded with 4.3K roll
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