S&P 500 Futures: Buy Europe / Sell U.S

Charts, Commentary, News, Our View, Stocks, Technical Analysis, The Opening Print

According to Merrill Lynch, allocations to equities in the eurozone jumped to a 15-month high in April, while U.S. stock/equity allocations dropped to its lowest level since 2008. The flip flop came as a record 83% of the traders polled thought U.S. equities were overvalued.

After settling at 2337.75 on Tuesday’s 3:15 futures close, the e-mini S&P 500 futures (ESM17:CME) rallied up to 2346.50 on the overnight Globex session. On the 8:30 futures open the ES was trading at 2345.00, up 7.25 handles. The futures initially traded up to the 2348.00, and then pulled back down to 2344.50 before shooting up to 2349.25. From there the ES ‘gradually’ sold off to 2343.00, then 2340.00, and finally down to 2338.25. There were a few bounces on the way down, but they were small.

Around 1:30pm CT the MrTopStep MiM started to showing big size to buy, upwards of $700 million. The early buys pushed the ESM17 back up to the 2340.00 area. When then the MiM ‘flipped’ to the sell side, the futures sold off down to a new low at 2333.25, bounced a little, then then sold off and ‘triple bottomed’ at 2331.25. Going into the 3:15 futures close the ES upticked a little and settled at 2333.50.

Cooling economic data, geopolitical tensions, and a weak oil market all helped put pressure on the S&P. I think the main concern now is whether or not elevated stock prices will be supported by the earnings. If there was one thing that was clear yesterday, it was all the stock rotations. The big investment firms and mutual funds were selling the large caps and buying tech. The Dow Jones futures (YMM17:CME) closed down 109 points, or -0.60%, while the Nasdaq 100 futures (NQM17:CME) closed up 2.75 points, or +0.20%.

While the S&P 500 did reverse lower, the losses were minimal. On Sunday night’s Opening Print I said that I thought the e-mini S&P (ESM17:CME) would trade back up to 2350.00, and yesterday’s high was 2349.25. I’ll be honest, I didn’t think the ES would get pushed down so hard, but weakness falls inline with what I have been saying for several weeks… “There is still unfinished business on the downside.”

Yesterday, a follower from Twitter asked me if I was thinking about the old adage, ‘sell in May and walk away’. I always think about the potential sell offs that come in at this time of the year. Sometimes it comes earlier than May, and sometimes it comes after.

In the end, the overall price action was one of failed rallies. In terms of the day’s overall trade and volume, it was a very low volume day considering that ES sold off 18 handles. I also think there is still a high level of complacency.

While You Were Sleeping

Overnight equity markets in Asia were choppy and mixed, and European stocks are mostly lower this morning. The S&P 500 futures opened the overnight session at 2333.25 and made a 2332.50 low on the open. The futures traded sideways going into the European open, and has since rallied up to 2341.50, up 7.75 handles. As of 7:00 am cst the ES is trading at 2340.50 with 130k contracts traded.

In Asia, 6 out of 11 markets closed higher (Hang Seng +0.97%), and in Europe 10 out of 12 markets are trading higher this morning (CAC +1.03%). Today’s economic calendar includes the Weekly Bill Settlement, Jerome Powell Speaks, Jobless Claims, Philadelphia Fed Business Outlook Survey, Bloomberg Consumer Comfort Index, Leading Indicators, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 52-Week Bill Announcement, a 2-Yr FRN Note Announcement, a 2-Yr Note Announcement, a 5-Yr Note Announcement, a 7-Yr Note Announcement, a 5-Yr TIPS Auction, Fed Balance Sheet and Money Supply.

PERFECT 10 HANDLE RULE

Yesterday, the ESM17 ‘triple bottomed’ at 2331.25, and then traded up to 2341.50 last night on Globex. For those of you that do not pay attention, or disbelieve in the rule, you may want to give this a long hard look. Bottom line, the ES tends to move in 10 handle increments.

See the 10 Handle Rule and the rest of the MrTopStep Trading Rules here

Our View

It’s hard to be bullish. The S&P has closed lower 10 out of the last 13 sessions. Can the ES pop back up to the 2350 level? Sure it can, but it could also slide under the 2318 level too. There are a ton of sell stops that start under 2322.20 and then go down to 2312 – 2314. The larger upside buy stops start above 2348.75 and push up to 2354-2365. It’s just a big choppy mess. Our view, I’m not sure. One side of me says buy it when it pulls back today, and the other says 2318 and lower could be coming soon.

PitBull: CLM OSC -9/17 TURNS UP ON A CLOSE ABOVE 5399, ESM OSC -7/-3 TURNS DOWN ON A CLOSE BELOW 234116, VIX OSC 6/9 TURNS UP ON A CLOSE ABOVE 1568.

Download all of the April expiration stats here

Market Vitals for Thursday 04-20-2017

Download (PDF, 822KB)

As always, please use protective buy and sell stops when trading futures and options.

  • In Asia 6 out of 11 markets closed higher: Shanghai Comp +0.06%, Hang Seng +0.97%, Nikkei -0.01%
  • In Europe 10 out of 12 markets are trading higher: CAC +1.03%, DAX +0.23%, FTSE -0.08%
  • Fair Value: S&P -3.52, NASDAQ -1.65, Dow -61.10
  • Total Volume: LOW 1.25 m ESM and 1.7 k SPM traded
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Danny Riley (1491 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


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