Going into last week the S&P futures had been riding a win streak that included only one losing week out of the last six weeks. The S&P’s pushed higher all week as traders were putting out significant technical and psychological levels. Sure, the Catalyst Fund that I spoke about for much of the week played a role, but what we are seeing is an equity rally without any pullback. 1% down days seem to be a thing of the past, and 10 handle pullbacks have become a rare gift. There has been one trade that is winning above all else the last few weeks, and that is buying the open and holding into new highs.
After running up to a high of 2351.50 on Wednesday, the S&P futures saw the biggest pullback of the month. The futures found resistance at 2350, pushing down to 2336.75, a tick shy of a 15 handle pullback, and then made a lower high Thursday, with Friday opening lower at 2337.75. From there the ES grinded higher into the afternoon expiration. While the futures missed the 2350 print by 5 ticks, settling at 2347.50, the cash index did close at 2351.16.
During Monday’s shortened holiday globex only trade, the futures kept pushing higher, as global stock markets went higher. The S&P’s printed 2356.75 just after the Euro open, up 8.75 handles on the session, before trading back down to 2349.50 later in the morning, building a floor at the 2350 area.
This week has some decent economic reports and Fed speak, but it doesn’t look like anything is going to get in the way of the S&P for now. We expect the Fed to raise interest rates, and we expect for Trump to be controversial, and even if he unveils specifics surrounding his tax plan, it’s unlikely to rattle the fear into the markets.
We are now through the February options expiration and the mid month rebalance. Given the limited amount of pullback this month, we have to think that with T+3 coming up at the end of this week, there has to be some selling at some point.
While You Were Sleeping
Overnight Asian equity markets were mixed but mostly higher. Europe has pushed higher with all markets up, except the FTSE, which is barely on the red side of unchanged. Last night, the ESH17 struggled to push back to the 2356.75 high, and early in the Euro session made a low of 2349.00. This led lead to a rebound back up to 2354.00 just now. The benchmark futures have last printed 2353.75 up 5.75 handles at 6:15 am cst on volume 209k since Sunday night’s open.
In Asia, 6 out of 11 markets closed higher (Nikkei +0.68%), and in Europe 10 out of 11 markets are trading higher this morning (DAX +0.48%). This week’s calendar includes 18 economic reports, 5 Fed speakers and 12 U.S. Treasury events. Today’s economic calendar includes PMI Manufacturing Index Flash, a 3-Month Bill Auction, a 6-Month Bill Auction, Patrick Harker Speaks, a 4-Week Bill Auction, and a 2-Yr Note Auction.
Our View
Goldman says the rally is irrational, and I have to agree. The S&P futures are now up 222 handles, or 11%, since Donald Trump won the oval office, and there seems to be no end in sight. Some people are saying the only thing they worry about is an assassination. Our view is to sell the early to mid-day rallies and buy weakness. The end of the rally doesn’t look to be anywhere in sight.
Market Vitals for Tuesday 02-21-2017
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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 +0.41%, Hang Seng -0.76%, Nikkei +0.68%
- In Europe 10 out of 11 markets are trading higher: CAC +0.25%, DAX +0.48%, FTSE -0.08% at 6:00am ET
- Fair Value: S&P -1.79 NASDAQ +1.37, Dow -21.73
- Total Volume: 1.4m ESH and 4.3k SPH traded
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