As the markets continue to climb, it has really become a ‘one sided’ market. With volumes in all the indices at record lows, selling just doesn’t work. While some traders say we have seen this type of price action before, I clearly disagree, and the PitBull said the same thing. Like I have been saying for the last several years, the market timers are continuously saying that the end of the really is near, or it’s time to get short.
On Friday, Thomas Lee, who was one of the best analysts on Wall Street when he worked at JP Morgan, lifted his year-end S&P 500 target to 2,475 from 2,275. A good friend of mine that used to head up prop trading at Goldman said this to me after I posted the Thomas Lee story; ‘Tom stopped being good around the time he left JPM. He’s just not in the flow anymore with clients’.
If This Was Easy We Would All Be Millionaires
We all know that trading the stock market or index futures isn’t easy, but like I have said hundreds of times, ‘the trend is your friend’, and until there is a shift in the current price action, the money trade remains on the buy side. I know traders want to ‘sell the rally’, but I disagree. The volumes are just too low. It’s not just in the S&P 500 futures, look at the NYSE volume, they do x million shares a day, and then on the close they put up 250 million shares. The S&P 500 futures that had record volume of 6.69 million contracts at the height of the credit crisis, and used to easily do 2 million contracts a day, are now doing under 1 million contracts a day.
Whats happening? The PitBull tells me all the time that all the stuff he uses just doesn’t work anymore. I understand we have been going up and up, but I think it’s true, in this type of low volume environment the algorithmic and high frequency trading programs can’t make any money. Until the VIX pops, the volume will continue to be low. I do not think you can rule out a sell off, but when? Until there is some type of structural change, what we are seeing today could go on for a lot longer. baring some large geopolitical event, like an attack on North Korea, or some type of proactive act by Iran, I just don’t know what can change this. While I have always been a bull, I have to admit, I am astonished how far things have gone without a 10% or 20% correction.
Friday’s 3 1/2 Handle Trading Range
As for Friday’s trade, the ES traded to a new all time high on Globex at 2555.25, and traded 2554.00 on the 8:30 future open, before selling off down below the vwap at 2550.25 at 8:46. The ES then rallied back up to the Globex high, then sold off and made a higher low at 2552.00. From there, the ES rallied back to the high again, and pulled back off down to the vwap at 2552.75, another higher low. Total volume at 1:30 was only 590,000 contracts. From 9:00 to 1:30 the total trading range was only 3.5 handles, from 2552.00 to 2555.50.
The early MiM started to show $470 million for sale, then at 2:10 was showing $700 million for sale and just as it did, the ES sold back off down to 2552.25, two ticks under the vwap, another higher low. As the MiM dropped so did the ES. At 2:45 the NYSE cash imbalance came out; MOC sell $860 million, and the ES sold off down to 2550.50 before popping back up to 2553.25 in the final minutes, just like Thursday.
In the end it was another low volume, narrow trading range, grind. Despite the new highs, no one was cheering. The S&P 500 futures (ESZ17:CME) settled at 2552.75, up +3.25 handles, or +0.12%; the Dow Jones futures (YMZ17:CBT) settled at 22830, up +32 points, or +0.14%; the Nasdaq 100 futures (NQZ17:CME) settled at 6099.75, up +25.00 points, or +0.41%; and the Russell 2000 (RTYZ17:CME) settled at 1506.30, down -1.50 points or -0.09% on the day.
While You Were Sleeping
Overnight, equity markets in Asia traded mostly higher, with the Hang Seng index leading the charge, closing up +0.76%. In Europe, markets are also trading modestly higher this morning, with the DAX up +0.11%.
In the U.S., the S&P 500 futures opened last night’s globex session at 2555.00, and were held to just a 4.5 handle range all night. As of 7:00am CT, the last print in the ES is 2554.25, up +1.25 handles, with 77k contracts traded.
Today’s economic includes the Empire State Mfg Survey (8:30 AM ET) Charles Schwab (8:45); Fedspeak — Neel Kashkari Speaks (9:00 p.m. ET); Earnings — McClatchy Co. (9:00), Netflix (16:00-05), Sonic (4:05 p.m.).
Big Week For Earnings
Our View: While there is a much smaller number of economic reports, the next 2 weeks are packed with a lot of big earnings reports. This week includes Netflix (NFLX), Morgan Stanley (MS), Goldman Sachs (GS), IBM (IBM), United Healthcare (UNH), American Express (AXP), United Airlines (UAL), Yahoo Verizon (VZ), Travelers (TRV), GE (GE), and Procter & Gamble (PG), that is just a few of the big names.
According to FactSet Earnings Scorecard: For Q3 2017 (with 6% of the companies in the S&P 500 reporting actual results for the quarter), 81% of S&P 500 companies have reported positive EPS surprises, and 78% have reported positive sales surprises (https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_101317.pdf) So far so good for the earnings season.
Our view is onward and upward, you can sell the gap up opens, or the first 2-3 handle rally above the gap, or just wait for the pullback and be a buyer. I started talking 2558-2560 over a week ago, and the ES is only a few handles off. The low volume grind is creating a big back and fill pattern that has existed for weeks. We all know the markers are overdue for a pullback, but it’s kinda like throwing a dart at a dartboard with your eyes closed.
Market Vitals for Monday 10-16-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed higher: Shanghai Comp -0.35%, Hang Seng +0.76%, Nikkei +0.47%
- In Europe 8 out of 12 markets are trading higher: CAC +0.10%, DAX +0.11%, FTSE +0.01%
- Fair Value: S&P -2.10, NASDAQ +2.14, Dow -55.69
- Total Volume: 918k ESZ & 329 SPZ traded in the pit
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