The Election Blues
The old adage about the ‘markets go up and the markets go down’ is ringing loud and clear in the S&P 500 futures. It was only a few weeks ago that I was talking about the 1 and 2 day declines and rallies and that this type of price action could not go on forever. I also said the low VIX was sending traders a signal. That signal was easy to see over the last several trading days with the VIX trading above 22, the S&P cash (^GSPC:SNP) down 9 days in a row, and the S&P futures down 9 consecutive sessions. The main culprit, the US presidential election and a possible Federal reserve rate hike in December.
Friday’s trade started out with the (ESZ16:CME) trading slightly higher on Globex then pulling back just before the jobs report. After the non-farm payroll number came in at 167,000 jobs, or unchanged from September. The S&P initially went higher up to 2088 before travelling down to an early low of 2079 shortly after the cash open. From there the S&P’s bid up to 2094.25, a 15.25 handle rally, stalled there just after 11:00 cst and then began to fall into the afternoon, trading to a new low down to 2078.75 just after the regular session close. After that close, the equity indexes looked very weak. MrTopStep has been saying that if they sell them too much before the election, the index futures will at least bounce into the election, and this was helped by news on Sunday.
Risk On Relief
After the news from FBI Director James Comey that Hillary Clinton was cleared, the S&P 500 futures gapped higher on the globex open at 2106.00 from Friday’s last print of 2081.50 and traded up to a high of 2111.00 early in the session, up two ticks shy of 30 handles. Equity markets around the world were lifted by the U.S. as Asian and European markets held a strong and noticeable bid during the overnight session. The ESZ made a low of 2102.75 just before the Tokyo session and then rallied up to a new 2112.00 high early in the Euro session. The ES is currently trading at 2107.75, up 27.75 handles, or +1.35%, on total volume of 226K as of 6:10 am cst.
Gold futures (GCZ6:CMX) traded lower overnight, down more than $20 at the 1284.10 low. Crude oil (CLZ6:NYM) gapped higher and traded as high as $44.99, up nearly $1.50 from Friday’s low. The 10 year treasury note (ZNZ6:CBT) gapped lower on the open and has seen a bid since that time, and the U.S. Dollar futures saw a gap open and maintained that bid through much of the overnight session.
The markets are obviously breathing a “risk on” sigh of relief after Clinton was cleared. This leaves the markets again vulnerable to the current polling to see if HRC gets a bump on the news. The political games which now include the FBI during this election are growing tiresome. My concern is if the markets rally too hard into tomorrow’s close then they will set up for a little ‘buy the rumor, sell the news’ type action. One thing we are observing over the last few elections is the unreliability of the polls, which is an antiquated method in this new age. Right now, with the spoos up so much overnight, it’s difficult to imagine that they trend higher during the day session, but at the same time, it’s hard to fade this move.
While You Were Asleep
In Asia, 11 out of 11 markets closed higher (Nikkei +2.44%), and in Europe 10 out of 10 markets are trading this morning (DAX +1.65%). There are a total of 14 economic reports this week, 6 Federal Reserve Bank Presidents speak and the US Presidential election. Today’s economic reports includes Gallup US Consumer Spending Measure, Labor Market Conditions Index, a 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, TD Ameritrade IMX, Charles Evans Speaks, Consumer Credit, and Treasury STRIPS.
Our View: The current volatility is far from over. After FBI director Comey said that there were no charges pending, the ES initially rallied 25 handles up to 2105.00. Around 5:30 am CT the ESZ16 rallied another 7 handles up to 2112.00. At the end of the day my saying about ‘think like an algo’ should apply this morning. Meaning that news is already out and the ES has rallied 32 handles. My gut tells me there could be a little more upside but it’s also saying ‘sell the news’.
As day traders we want to catch moves and this has already happened. Additionally the S&P futures (ESZ16:CME) have run a lot of buy stops. I am not saying there will not be a globex retest of the highs, nor am I saying the ES cant go higher, what I am saying is like I said above, the news is out but the election is far from over. Our view, sell the early rallies and buy weakness, and expect some big intraday moves.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 11 out of 11 markets closed higher: Shanghai Comp +0.26%, Hang Seng +0.70%, Nikkei +2.44%
- In Europe 10 out of 10 markets are trading higher: CAC +1.77%, DAX +1.65%, FTSE +1.49% at 6:00am ET
- Fair Value: S&P -5.12, NASDAQ -4.89, Dow -81.94
- Total Volume: 2.1m ESZ and 2.5k SPZ traded
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