Yesterday, the S&P 500 futures finally broke through the ‘big figure’ at 2300.00, and kept going. I always think of futures trading as a two-way street, meaning you can buy and sell, but the selling part has not worked for a very long time. I also decided over a month ago that while I may still think there are going to be some big selloffs in 2017, until the current price action of selling off a little and then trading sideways (back & fill) changes, the only trading rule that works is ‘the trend is your friend’.

Robots Control The Order Flow

I have given a lot of thought to how the ES volumes have dropped and what the ultimate effect of this means, and it has come down to one word; THRUST. When volumes are high there is an increase in algorithmic, high frequency, and program trading volumes, but when the volume is so low, like it has been for the last few years, the futures have to build up thrust before they move hard. To build up the thrust the S&P has to sell off, trade sideways for a few days, or even weeks, and then explode higher. The natural buyers, like the mutual funds, buy when the markets are going up and down, but when the ES starts making higher lows, the buyer’s force the shorts to cover, which ultimately helpS fuel the upside.

The effects of quantitative easing helped push the stock market higher during the credit crisis, but now I think it’s all about historically low interest rates, and a ‘nowhere to go but stocks’ mentality. The buyers are not afraid and continue pushing money back into the stock market. The retail trader ends up just being part of the coded program, and our buy stops are part of the gears that help facilitate the automated trading programs. It’s all part of the mechanical rodeo we play.

The Nasdaq is now getting back to the levels of the 1999-2000 tech bubble. It’s been an amazing ride that ‘seems’ to have no end in sight. As I have always said, until the price action I described above changes, the money trade will remain buying weakness. Is the current rally all Donald Trump? I do not think so, but clearly, the markets are reacting in kind to some of his initiatives. I also think it’s possible for the markets to get ahead of themselves, and when the Trump / stock market honeymoon is over, the market may be in for a reality check. Like I said ‘we are not here to fight city hall,’ and whether the markets are going up or down, I want to go for the ride.

While You Were Sleeping

Overnight equity markets in Asia rallied, led by the Nikkei which closed up 2.49%. European markets then opened mixed, with the DAX and FSTE pointing modestly higher. The S&P 500 futures opened globex at 2304.25 and made an early first hour low at 2303.00 before rallying with Asia up to 2309.50. The futures fell back to 2304.75 after the Euro open, just two ticks from the overnight open, and has last printed 2305.75, up 1.5 handles, on volume of 82k as of 5:58 am cst.

In Asia, 9 out of 11 markets closed higher (Nikkei +2.49%), and in Europe 6 out of 11 markets are trading higher this morning (FTSE +0.33%). Today’s economic calendar includes Stanley Fisher Speaking on Saturday Feb 11, Import and Export Prices, Consumer Sentiment, Baker-Hughes Rig Count, and the Treasury Budget.

Today’s Calendar Preview from Barclays & BofA/ML

Barclays:

BofA Merrill:

Our View

Since last Tuesday’s low, the ES has rallied 47.25 handles in 8 days. While I still think there is more upside, I can’t rule out some type of pull back. 7 out of the last 10 Fridays have been up. I started putting out 2310.00 a few weeks ago, and Top Notch Trading has raised his level up to 2320. So there might be a short term high somewhere in the middle. The US is the no.1 market in the world for technology, and its been helping push the rest of the indices higher. I think it’s very important to keep an eye on the Nasdaq. Our view….I hate to say it is unchanged; you can sell the early to midday rallies and buy weakness ,or just follow the patterns / trend and buy weakness.

Download the February expiration stats here

Market Vitals for Friday 02-10-2017

[gview file=”https://mrtopstep.com/wp-content/uploads/2017/02/Market-Vitals-17.02.10.pdf”]

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

  • In Asia 9 out of 11 markets closed higher: Shanghai Comp +0.42%, Hang Seng +0.21%, Nikkei +2.49%
  • In Europe 6 out of 11 markets are trading higher: CAC -0.08%, DAX +0.18%, FTSE +0.33% at 6:00am ET
  • Fair Value: S&P -3.69, NASDAQ -1.91, Dow -48.60
  • Total Volume: 1.35m ESH and 3.5k SPH traded

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