Chopping Lower
The S&P 500 futures moved mostly lower throughout last week. The futures closed lower four out of the last six sessions, but when it was all said and done, all the shake, rattle and roll did not amount to much.
A week ago last Friday the ESZ16:CME settled at 2146.50. At Friday’s high of 2143.25 it looked like the ES was trying to hold, but after the early rally, the S&P futures lost their bid and started moving lower. That’s how the overall price action of the S&P works. Once the buying has exhausted itself the seller’s show right back up, and once the selling has exhausted itself the buyers show right back up.
After trading from a high of 2143.25 the ES sold off all the way down to 2126.50, then popped back above the vwap at 2137.00. Again, the S&P futures ‘looked’ firm, but despite $500 million to buy on the close, the futures sold off 12 handles from the afternoon high going into the close.
At the end of the day, the (ESZ16:CME) closed at 2126.90, up a modest 0.20%. The Dow Jones futures (YMZ16:CBT) closed at 18059.00, up .17%, and the Nasdaq 100 futures (NQZ16:CME) settled at 4804.25, up 8.25 points on the day.
Cause and Effect
In pre-market action the reported third quarter earnings from J.P Morgan, Citigroup, and Wells Fargo were not great, but came in better than analyst expect. The S&P closed firm on Thursday. There was some follow through to the upside early Friday, but it reversed around 9:30 ct. Germany said it would not bail out Deutsche bank, and Federal Reserve chairwoman Janet Yellen message was very dovish, saying that it may be a good idea to let the economy run hot to ensure growth stays strong.
All of the above played its role in snapping the early rally. At its high the Dow futures (YMZ16:CBT) were up over 160 points. After a lot of big ups and downs, and failed rallies for the week, the Dow was down 0.6%, and the S&P 500 was down 1%, the second down week for both. Both are down for the month, but are up 4.1% and 4.4%, respectively, for the year.
While You Were Asleep
Overnight Asian stock markets were mixed to lower. Europe came online and opened up with an offer across the board. The S&P 500 futures opened globex at 2126.25, made a high of 2128.75, then went offered for much of the early session. As Tokyo was opening, the ES sold off down to 2116.75. From there the S&P’s chopped sideways. There was a bounce up to 2124.50, shortly after the European open, before a move back down to 2118. Currently the ES is trading at 2125.50 with 148k contracts traded at 7 am cst.
Today’s calendar is quiet outside of earnings, which include financials such as BofA, Schwab, and transport JB Hunt, among others. Today is the 11th of 21 trading days this month, so there could still be some mid month rebalancing at work as the equity markets prepare for the October option expiration this week. The October expiration stats look positive, however, the S&P is looking weak early. If bulls are unable to grab this market early today, then it looks like last week’s 2107.75 is a target, and then the September 2100 low print before a run to the 2075 area.
In Asia, 6 out of 11 markets closed lower (Nikkei -0.74%), and in Europe 11 out of 11 markets are trading lower this morning (DAX -0.50%). This weeks economic calendar includes 14 separate economic reports (low), 10 T-bill or T-bond auctions or announcements, 6 Federal Reserve bank presidents speaking, and 18% of the S&P earning reports. Today’s economic reports include a 3-Yr Note Settlement, 10 Yr Note Settlement, 30-Yr Bond Settlement, Empire State Mfg Survey, Industrial Production, a 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, and Stanley Fischer Speaks.
Our View
I don’t know what to say. The S&P is clearly struggling. You could see it Friday during the early sell off and going into the close. The overnight price action was weak, but now we are back near the open, and the expiration study shows Monday up 24 of the last 32 years. It’s not uncommon for the PitBull’s Thur/Fri low to be retested during globex Sunday night. Until the S&P breaks down during cash hours, we have to maintain our view of the positive expiration stats along with the PitBull’s rule. Our call is to buy late morning weakness looking for the bounce into opex. The Tue/Wed stats are less favorable, so if the bounce doesn’t come today, we could see more weakness.
Download all of the October expiration stats here.
As always, please use protective buy and sell stops when trading futures and options.
Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.
- In Asia 6 out of 11 markets closed lower: Shanghai Comp -0.74%, Hang Seng -0.84%, Nikkei +0.26%
- In Europe 11 out of 11 markets are trading lower: CAC -.046%, DAX -0.50%, FTSE -0.77% at 6:00am ET
- Fair Value: S&P -6.19, NASDAQ -7.26, Dow -90.79
- Total Volume: 1.84m ESZ and 3.9k SPZ traded
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