S&P 500 Futures And The Election Blues

The Election Blues

Yesterday, after Tuesday’s decline, it seemed that many of us nearly forget that FOMC was on the table. The S&P futures traded in a mostly quiet range during the early part of the session, after opening at 2102.00, down 2 handles. On the 8:30  open, the futures made a 2105.50 high, then traded sideways to lower for much of the session. An early low of 2096.25 was made after a record report of crude oil inventories. From there the S&P pretty much went sideways, but did start to breakdown into the FOMC release, and afterward made a multi month low at 2087.25. After that, the ES popped back up to 2099.75, before settling at 2092.50, down 9.50 handles on the day.

It was a day of mixed feelings. However, the bears did what they needed to do, convert 2100 into resistance and make a new low while closing in the lower part of the day’s range. But, this was not an ‘in your face’ continued selling by the bears, which at this point suggests an orderly sell off. Most importantly, sellers kept putting the pressure on the S&P, and for the most part, buyers did not attend. We said until bears impress us, we are going to consider this price action noise, but a potential start of something larger, and we still feel the same way.

With NFP coming up this Friday, and the election in only five days, seeing some risk off is not a complete surprise. Often times the equity markets have a pattern, and if the market is selling the rumor, then likely it will be buying the fact. If the S&P maintains orderly selling going into the election, then we are looking at the potential of purchasing some call options to see some post election bounce. However, if the selling starts to gain traction before the election, then we will look to fade any post election bounce.

While You Were Asleep

Overnight, markets in Asia were mostly lower, but Europe caught a bid. The big economic story of the night was the U.K. high court ruling that the Brexit cannot occur without parliamentary approval. The appeal to this will be heard in December, but the pound sterling did receive some bids after this ruling. The ESZ opened globex at 2088.25 and rallied up to 2094.75, but then fell to 2084.00 early in the Tokyo session, making a new multi month low. From there buyers did come in pushing the index futures up to 2098.75. That move dried up just below the 2100 area, as the S&P’s last printed 2095.75, up 3.50 handles, on volume of 182k as of 6:26 am cst.

Today is a busy day on the economic calendar during the U.S. session. The key for bulls will be to break through and recapture 2100, this will be the first modest step needed. Bears need to crush this rally overnight and push a move back to the globex lows. Right now we are watching election polls for clues.

Our View

In Asia, 8 out of 10 open markets closed lower (Shanghai +0.84%), and in Europe 8 out of 11 markets are trading higher this morning (FTSE -0.44%). Today’s economic reports include Weekly Bill Settlement, Chain Store Sales, Challenger Job-Cut Report, Jobless Claims, Productivity and Costs, Gallup Good Jobs Rate, Bloomberg Consumer Comfort Index, PMI Services Index, Factory Orders, ISM Non-Mfg Index, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 52-Week Bill Announcement, Fed Balance Sheet, and Money Supply.

Our View: The S&P futures and cash markets have both been down 7 days in a row. While the markets are still very troubled, the FBI is now saying the Clinton Foundation investigation is now ‘a very high priority’. This presidential race has become a presidential mess for the US public and the stock markets. That said, we have another heavy round of economic and earnings reports to get past. After that, I get the feeling the spoos may bounce. Our view today is one sided, buy weakness using tight sell stops.

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

• In Asia 8 out of 10 open markets closed lower: Shanghai Comp +0.84%, Hang Seng -0.56%, Nikkei closed
• In Europe 8 out of 11 markets are trading higher: CAC +0.51%, DAX +0.04%, FTSE -0.44% at 6:00am ET
• Fair Value: S&P -5.22, NASDAQ -4.29, Dow -82.55
• Total Volume: 2.0m ESZ and 3.7k SPZ traded