Can you say up day down a day? We can! The futures index markets, especially the Nasdaq 100 futures (NQU17:CME), have been sending negative signals for the last 3 weeks. With the Nasdaq 100 index up over 30% since last June, the big investment firms decided it was time to take some profits. FANG and friends had gone too far, too fast!
Monday the Nasdaq 100 futures (NQU17:CME) closed down 34 points. On Tuesday the NQ broke another 102 points. On Wednesday the futures rallied 87 points, and yesterday they got clobbered, closing down 110 points.
All Sell Programs And Sell Stops
Yesterday, at 8:30am CT the, NQ was trading at 5746.75, and by 12:30pm it was trading at 5600.50, that’s close to a 150 point drop. The S&P 500 futures made a day session high at 2440.50 right after the 8:30 open, and then sold off all the way down to 2402.25 at 12:30, that’s a 38 hande drop in 4 hours. The 50 day moving average at 2405.50 was key in holding the ES up. After that low was made, it was a slow stair stepper back up to 2422.00.
While the markets have been going up since the March 2009 lows (S&P up 250%), I think a lot of this had to do with what I call the ‘free money’ trade, because of the ultra low, or negative, interest rates provided by the world’s central banks. Over two years ago, the U.S. federal reserve said the economic recovery was well underway, and started talking higher rates. Now, the Central bank talking heads from the U.S. Federal Reserve, the European Central Bank, and the Bank of England are looking for ways to remove the stimulative supports they put in place to bolster growth.
In the past it was a threat, but today it seems like a reality, and the markets are acting in kind. It’s causing shock waves in the global stock markets. Right now, it seems to be just in the European and U.S. stock markets, but if stocks continue lower, I think it could go global.
Telling Yields
I understand that after a big down day like yesterday there are always bounces, but there does seem to be something big going on, and you can see it in the bond market. Bond prices fell for their third straight day. Three days ago, it was at a year low of 2.135%, then yesterday, the yield on U.S. 10-year Treasury notes rose to 2.270%. I also understand how much the U.S. stock market is up this year, and giving a little of the gain back should not be a big deal, but I also think that means there also could be a lot more room on the downside should the sell off continue.
In the world of ‘risk on, risk off’, it’s all been off lately. Can the S&P and Nasdaq rally today? Sure, we have a trading rule that says after a big down day, the ES tends to go sideways to higher. It worked earlier this week, and as more people prepare to take time off for the 4th of July holiday, ‘thin to win’ could take over. Statistically, July is the best month of the 3rd quarter, but I’m just not sure the Nasdaq will care much about that.
In the end S&P 500 futures (ESU17:CME) settled at 2420.00, down -18.50 handles, or -0.76%, the Dow Jones futures (YMU17:CBT) settled at 21,225, down -147 points, or -0.69%, and the Nasdaq 100 futures (NQU17:CME) settled at 5653, down 110.50 points, or -1.9%.
While You Were Sleeping
Overnight, equity markets in Asia traded mostly lower, led by the ASX 200, which closed down -1.66%. The shift toward tighter monetary policy in the U.S. made its way to Asia, forcing bond yields up, and stock prices down. Meanwhile, in Europe, all majors are trading higher this morning. In the U.S., the S&P 500 futures have slowly begun to recover from yesterday’s meltdown.
The ES opened the globex session at 2420.75, and traded in a 5 handle range throughout the Asian session. Just after 2:00am CT, the futures sold off down to 2415.00, but immediately recovered, and have been trading higher, fueled by the strength in European stocks. As of 6:30am CT, the last print in the ES is 2425.50, up +5.50 handles, with 180k contracts traded.
In Asia, 8 out of 11 markets closed lower (Shanghai +0.09%), and in Europe 12 out of 12 markets are trading higher this morning (FTSE +0.26%). Today’s economic calendar includes the 2-Yr FRN Note Settlement, the 2-Yr Note Settlement, the 5-Yr Note Settlement,the 7-Yr Note Settlement, the 30-Yr TIPS Settlement, Personal Income and Outlays, Chicago PMI, Consumer Sentiment, and the Baker-Hughes Rig Count.
Welcome To The June Quarterly Rebalance
Our View: Was this the flush out we’ve been waiting for? I don’t know, but I think think the low has been established going into the holiday weekend. Thin-to-Win should take over from here.
Market Vitals for Friday 06-30-2017
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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 lower: Shanghai Comp +0.09%, Hang Seng -0.77%, Nikkei -0.92%
- In Europe 12 out of 12 markets are trading higher: CAC +0.69%, DAX +0.29%, FTSE +0.26%
- Fair Value: S&P -2.64, NASDAQ +5.15, Dow -57.85
- Total Volume: 2.3mil ESU, and 1.2k SPU traded
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