Based on how the S&P futures (ESM17:CME) acted late on Friday, and the fact that the week after the March Quad Witching is historically lower for the S&P, we knew that the ES may struggle, and that’s what happened during Monday’s trade.

The ES traded lower on Globex, opened the day session two handles lower at 2372.75, and then made two separate highs at 2375.75 and 2376.00. After the early highs the ES gradually sold off under the VWAP, and on the third attempt back at the highs the S&P’s finally got hit by two decent sized sell programs. The first program pushed the futures down to 2367.00 beginning at 12:30 pm cst, and the second sell program pushed the ES down to its daily low at 2365.50 at 1:30 pm cst. Not long after that, the guys with the better seats showed up.

We talk a lot about the guys with the better seats and the ‘3 Parts to the trading day,’ and yesterday’s late day sell off and rally were exactly how the rule works. Part 1 is the weakness on Globex overnight. Part 2 is what happens after the 8:30 cst futures open, and Part 3 is when the boys with the better seats show up (mutual funds and etf’s buying the close).

After the S&P found it’s low 10.50 handles off the high, the “10 handle rule” kicked in and buyers started pushing the index futures back up to 2372.50. Buyers found resistance where the late morning and midday support was, and the futures closed out at 2370.50, down 4.25 handles on the session.

From Stock Trader’s Almanac

In the following chart, S&P 500 historical average performance has been plotted comparing “All Post-Election Years,” “January Trifecta Positive,” “January Trifecta Positive – Post-Election Year” and 2017 as of today’s close. Thus far, S&P 500 has been tracking “January Trifecta Positive – Post-Election Year” (purple line) rather closely. Even March’s mild downtrend is mirroring the historical pattern. Should S&P 500 continue to track this pattern, then it is likely to begin its next leg higher in early April just as earnings season gets underway in earnest.

While You Were Sleeping

Overnight, stock markets were quiet and mixed around the world, but with a slightly higher tone in Asia and Europe. In the U.S., the S&P 500 futures opened globex at 2369.00 and made an early low at 2368.00 before the Tokyo open. From there the futures rallied up to 2375.75, and then 2376.75 soon after the Europ open. As of 6:35 am cst the last print is 2375.25, up 5.00 handles, on volume of 88k.

In Asia, 7 out of 11 markets closed higher (Shanghai +0.33%), and in Europe 7 out of 11 markets are trading higher this morning (DAX +0.03%). Today’s economic calendar includes the Fed’s William Dudley Speaking, William Dudley Speaks, Current Account, Redbook, 4-Week Bill Auction, Esther George Speaks, Loretta Mester Speaks and Eric Rosengren Speaks.

Our View

I think the next big conspiracy for getting short the S&P is the budget. Will it be President Trump, or will congress try and mess things up at the 11th hour? I don’t think so. With regard to the S&P, it seems weak and can’t hold the rallies, but yesterday’s high was 2376. Yes, the ES sold off a little late, or just after the close, but it just doesn’t feel like the sellers are that committed.

That said, I do think it’s important not to forget that the week after the March Quad Witch has been down 19 of the last 29 years and down 4 of the last 5. Additionally, March is historically weak in the later part of the month and the last trading day of March or the first quarter has the Dow down 17 of the last 27 occasions. I can’t remember where I read it, but the last 3 days into the quarterly rebalance is weak.

Our view; these are great markets for the little guys, a little up and a little down. Sell the rallies and buy weakness is how we see it.

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

  • In Asia 7 out of 11 markets closed higher: Shanghai Comp +0.33%, Hang Seng +0.37%, Nikkei -0.34%
  • In Europe 7 out of 11 markets are trading higher: CAC +0.38%, DAX +0.03%, FTSE -0.13% at 6:00am ET
  • Fair Value: S&P -3.69, NASDAQ +1.93, Dow -55.41
  • Total Volume: 1.0 mil ESM and 1.8k SPM traded

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