The markets are scared and so is the public. After trading higher going into the 3:15 futures close on Wednesday, the S&P futures (ESZ16:CME) sold off after the close, and during Wednesday night’s Globex session. On Thursday morning the ES opened at 2117.75, down 13.75 handles, and then got hit by a big sell program. The break took the futures through the 2113.50 globex low, down to 2107.75, the lowest level since last month. If anything has become apparent, it’s that the public is running scared.
After an over 225% rally in the S&P since the March 2009 credit crisis low, and billions in quantitive easing, the S&P is starting to show some stress cracks. At its early low the Dow Futures (YMZ16:CBT) were down over 137 points, and the Nasdaq 100 futures were off 59.00 points.
October is known for its crashes and steep declines, but it’s also known as the ‘bear killer’. As the month has worn on, so has the S&P. The theme has been a rash of negative headline news. From the Wells Fargo bank scandal, to Deutsche Banks demise, to the feds ongoing push to raise interest rates. It’s all been a big drag and seems to have cast dark clouds over the markets.
Yesterday, copper fell 2.5% to it’s lowest level in a month, after Chinese trade balance imports/exports were a large miss. Natural Gas futures saw a large climb after the inventory numbers rose as high as 3.36 to levels not seen since late 2014. Meanwhile, crude oil futures are continuing their assault above the $50 level, trading back above $51. Oil came less than 10 cents from making a new 2016 high, which would also be the highest levels since July 2015.
After making the 2107.75 low yesterday, the ES rallied back above the vwap at 2116.75. The futures began to hold ground there, building a base above the opening print, that allowed buyers to push the index back to 2132.50. That area was the middle part of Wednesday’s range. The ESW did sell off into close, settling at 2126.50, only down 5 handles from the prior cash close, and just a handle shy of 20 from the morning’s low.
Overnight stock markets around the world continued Wall Street’s lead and mounted a comeback, particularly Europe, as many of the major players are up over 1%. The ESZ continued its strength from yesterday. After making a low at 2122.25 shortly after the Tokyo open the S&P started to rally. This rally was intensified after the European markets opened higher and the ESZ pushed all the way up to 2138.75, up 12.5 handles, or .60%. Currently, the futures are sitting three handles under that high, with 161k contracts traded as of 6:32 am cst.
Buy Yom Kippur, Sell Passover
From Stock Traders Almanac
“Earlier this month we examined “selling Rosh Hashanah” and now let’s take a closer look at buying Yom Kippur. Last week’s table has been trimmed and condensed to show the last 26 years results. DJIA has advanced 22 times and declined just four times since 1990 between Yom Kippur and Passover with an average gain of 8.6%. The worst decline was 7.4% in 2000-2001 and the best was 25.4% from 1998-1999. Over the last seven years of the current bull market, DJIA’s average gain has been 10.6%.”
In Asia, 9 out of 11 markets closed higher (Nikkei +0.49%), and in Europe 10 out of 11 markets are trading higher this morning (DAX +1.64%). Today’s economic calendar includes PPI-FD, Retail Sales, Eric Rosengren Speaks, Business Inventories, Consumer Sentiment, Loretta Mester Speaks, Janet Yellen Speaks, and the Baker-Hughes Rig Count.
DAZED and CONFUSED
Our View: The ES rallied 24 handles off yesterday low, pulled back slightly on the futures close, and was up 8 handles overnight. Clearly the firmer tone carried from the close to the overnight globex session. Sentiment Trader said that the ES gapped down to a multi-month low after the open, reversed higher, and closed above its opening range. They say reversals like that look ‘great on the charts,’ been an overall consistent indicator. Of the handful of times that it’s happened, the S&P ended up making a lower low every time.
I think the real thing here is not just the earnings, or the possible fed rake hike in December, or Deutsche Bank, or the weakness in China. It falls squarely on how October plays out and the U.S. presidential election. The public is dazed and confused about the election and afraid to make any major adjustment before the results. All the dips and rips are making it very hard to define the trend.
Our view is that today will be a two way trade. Sell the early rallies and buy weakness. Fridays can be tricky, and don’t always close well, but we have to stick with the PitBulls trading rule about a low the Thursday or Friday the week before the October expiration. According to the S&P cash study, today and Monday are statistically the most favorable days of the expiration.
Download the October expiration stats here.
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 +0.08%, Hang Seng +0.88%, Nikkei +0.49%
- In Europe 10 out of 11 markets are trading higher: CAC +1.93%, DAX +1.64%, FTSE +0.84% at 6:00am ET
- Fair Value: S&P -6.27, NASDAQ -7.13, Dow -91.03
- Total Volume: 2.2m ESZ and 3.6k SPZ traded
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