It’s 1:15 pm CT and the S&P 500 futures (ESZ15.CME) have traded all the way up to one tick away from 1970, up 21 points on the day. Despite continued global weakness in China and Europe, the S&P is again pushing back from the negatives, as the Federal Reserve’s two day meeting approaches. Globex was again slow and somewhat weak as the futures traded 10 handles lower around 3:30 CST, but that didn’t matter as the index rallied 35 handles from those lows in less than 8 hours. We have been pointing out 1950.00 for a while now, and today it again traded both sides of that area, also we have been noting how low the total volume get’s when it trades above 1950, and today is no exception. When you take away the globex volume, spread volume, and account for the last bit of the roll that is still being executed, volume is extremely modest. It doesn’t seem unexpected the price is trading higher early in the week. As we mentioned yesterday, the billions of outflows that have been reported from stocks, ETF’s, mutual funds, and a CFTC COT report that shows short interest and hedging at levels not seen in 15-20 years. When the scales are weighed so heavily to the bearish side, in terms of sentiment, then the mid month money looks to hedge by covering some shorts, or buying to open, and that’s what we are seeing.
Turn Around Tuesday
A few of MrTopStep trading rules kicked into effect yesterday; the first is Turn Around Tuesday (download the MrTopStep Trading Rules e-book here ), and the other was thin to win, and it was not by conidence. Total volume in the ESZ15.CME was 2 million contracts traded, but when you break the volume down, you will get a better understanding of how ‘thin to win ‘ works. In Globex the ESZ15 did 410,000 contracts and the ESU15 / ESZ15 spread make up 580,000 contracts traded. When you subtract the 990,000 contracts from the 2 million contracts traded there was only about one million ESZ’s traded in the day session. On Monday, while the index futures traded in a range between 1935.75 – 1952.50, total volume reached 1.5 million, but when considering 410K of that in globex, and another 600K between the ESU/ESZ spread, that leaves approximately half a million in outright trades. Thus…..Thin to Win is hard at work and winning right now.
Over the last few days the S&P has shaken off that funny feeling it had and reversed higher again. One of the questions we are asking is did the big 1,100 point drop make up most of the month’s volatility and the ES is now in recover mode? Do we still have to worry about the fed? Yes. Do we have to worry about the SEPT Quad witch? I do not think so, most of the positions have been cut back and rolled already. Is the September quarter end rebalance something to worry about? I think so, but so are the weeks after the expiration. Will October bring some scary moments? It would be hard to believe that it won’t, but at the end of the day I still think we see a big year end rally, and if the ESZ does sell off sharply I will be looking for a cheap S&P call options to buy.
In Asia, 10 out of 11 markets closed higher (Shanghai Comp. +4.89%) , and in Europe 11 out of 12 markets are trading higher this morning. Today’s economic calendar starts with the beginning ot the FOMC Meeting, MBA Mortgage Applications, Consumer Price Index, Housing Market Index, EIA Petroleum Status Report, and Treasury International Capital.
Our View: I do not think this is over, but the S&P is ‘holding its own’, or at least up to today it is. I know some people think that the S&P is going to retest the China Crash Flash Monday low at 1931, but I think the S&P is trying to rally. The problem is all the headwinds the ES is facing that go all the way out into October. I still maintain that the ES will start some type of significant bounce in mid to late October as the stock market moves back into the best 6 months from November to April. Up until then we can not rule out quick reversals. The end of September and beginning of October could get spooky.
So here we are, looking at the first interest rate hike in 9 years. Will the fed pull the trigger? And what will happen if they do? At the end of the day we all know the markets are going to see a larger correction at some point, but I don’t get the feeling it happens this year. I am sticking with my call that the ES goes back up to 2200.00 by year end. Our view is that the roll over and Globex will make up the lion share of today’s trade. It’s hard for the algos to eat when everyone is rolling. Sell the early rallies and buy weakness keeping in mind how much the ES has gone up over the last few days, 65+ handles, since Friday’s low. The S&P looks great, just like it did when it popped up to 1992.
- In Asia 10 out of 11 markets closed higher : Shanghai Comp. +4.89%, Hang Seng +2.38%, Nikkei +0.81%
- In Europe 11 out of 12 markets are trading higher : CAC +1.51%, DAX +0.70%, FTSE +1.07% at 6:00 am CT
- Fair Value: S&P -10.49 , NASDAQ -13.10 , Dow -107.37
- Total Volume: 2mil ESZ and 47k SPZ (all spreads).
- Economic calendar : FOMC Meeting begins, MBA Mortgage Applications, Consumer Price Index, Housing Market Index, EIA Petroleum Status Report, Treasury International Capital.
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