S&P 500 Futures: #ESH17 2255.25, #YMH17 19723, #NQH17 4897.00, #TFH17 1392.4

It’s been a fairytale come true for the U.S index markets since Donald Trump won his bid for the White House. As the markets continue their record push higher, the S&P 500 futures (ESH17:CME) have closed higher 17 out of the last 28 trading sessions.

Since November 7th there have been a total of 24 trading days, 17 up / 7 down. From Nov 14th to current there have been a total of 19 trading days; 13 up / 6 down. From Nov 21 to current there have been a total of 14 trading days; 9 up / 6 down. From Nov 25th there have been a total of 11 trading days, 7 up 4 down… And the icing on the cake? From December 5th to current, or the last 5 sessions, the ESH16 has been up 5 in a row for a total gain 69 handles.

No matter how you break it down the S&P has exploded, and when you look at the down days, with the exception of November 2 and November 28, all of the other down days have been under 7.75 handles. After most drops, no matter how big or small, the ES is higher the next day. While there are several moving parts, the thing that bothers me is the total lack of pull back.

This week the November S&P cash study will be put to the test. While the stats are positive, there have been times when the S&P rallied too much before the expiration and did not perform very well. I am providing a link to the study for your review: https://mrtopstep.com/wpcontent/uploads/2016/12/December-2016-Expiration-Stats.pdf

The other part of this is that most of the big accounts have already rolled their call positions higher or covered.

OPEC Oil Cuts: Trust Me

While OPEC was able to reach an agreement on production cuts in November, there has always been a problem with the agreements, and it’s called trust. On Saturday 11 oil producers outside OPEC met at the cartel’s headquarters in Vienna. The outcome was that the 11 countries agreed to cut a total of 558,000 barrels a day. OPEC did not release any information on the countries that cut, or how much they agreed to cut production, nor did they say how the agreement would be enforced.

According to Goldman Sachs, in 17 production cuts since 1982, OPEC members have reduced output by an average of just 60% of their commitments. According to Morgan Stanley OPEC exceeded its quota by an average of 883,000 barrels a day on average from 2000 to 2008. In other words, reaching an agreement will more than likely be the easy part, enforcing it will be entirely different.

With several wars going on in the Middle East, and many South American countries dependent on oil production to keep their already weak economies going, it’s going to be almost impossible to verify the production cuts. Everything is done on an ‘honor system’ that has never really worked. It is going to be interesting to see how this plays out. My own feeling is that it’s time to sell the news when it comes to oil.

What Goes Up, Must Come Down; Comparisons To The Weeks Leading Up To The 1987 Crash

Some traders do not believe in historical stats or seasonals. When I wanted to introduce Jeff Hirsch from the Stock Trader Almanac to Rick Santelli on the floor, Rick said he really ‘didn’t believe in that stuff.’ I was surprised, but as a trader, we all know what may fit for one trader does not fit for the other. That is how the trading game works. That said, the S&P has reacted in kind to the beginning of the best six month for stocks.

The economy is rolling, the Trump rally continues… Everything looks great. The S&P has gone from being down 7% on election night, to up 11.5% since that low, with the gains coming in the last 4 to 5 weeks. This last 4 to 5 weeks looks very much like the weeks leading up to the 1987 Crash. There was a sell off and then the S&P started going up everyday. I remember this so well, being on the floor until 10:30 on Black Friday, and then the crash on Monday. The S&P is doing ‘exactly’ what is was doing back then,, sell off a little in the first part of the day, and then rally and make new highs everyday.

I remember how Paul Tudor Jones made a name from himself calling for the crash, but most of all, I remember how the S&P rallied every day. I can’t say the circumstances are the same as they were back in 1987, but I can say the daily price action is identical. Back then it was a big bubble, and after that, it was the 1999-2000 tech bubble. Could the next big bubble be coming? And if so, will they call it the ‘Trump Bubble?’ No one knows for sure, but if history has its way, you may want to tighten your seat belts… 2017 is going to be very, very volatile.

While You Were Sleeping

Overnight, Asia saw a mixed trade that included the Shanghai Comp down nearly 2.5% with the announcement of new regulations, and the European markets have traded quietly as well. The S&P futures rallied hard on the globex open, up 10 handles to 2264.75, found a high there, and have traded lower ever since. The ES was down 15 handles from the high, and 5 handles from Friday’s close, before bouncing there back up to unchanged at 2254.75. The futures last printed 2254.25, down two ticks on the session, with volume of 230k as of 6:26 am cst.

Today’s calendar is quiet, but the anticipation for this week’s events are brewing, and today’s daily bar is shaping up to be a reversal pattern. If bears can push back to the low of day, in fact, it would be an outside engulfing bar if it can trade below 2240 today. While these technical patterns don’t always mean anything, and do not negate market feel, MrTopStep is still sticking with the “30 handles lower” call from 2250. We think that the path of less resistance for algos will be to run sell stops.

In Asia, 6 out of 9 open markets closed lower (Shanghai -2.47%), and in Europe 6 out of 11 markets are trading lower this morning (FTSE -0.31%). This week’s economic calendar features the two day Fed meeting followed by the announcement and press conference, and includes 23 other economic reports, just one Fed Speaker aside from Wednesday, and 15 U.S. Treasury events. Today’s economic calendar includes a 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, a 3-Yr Note Auction, a 10-Yr Note Auction, and Treasury Budget.

Our View

According to the expiration week starts, Monday is up 19 and down 13 occasions in the last 32 years. The big question is, will the S&P sell off before or after the Fed raises rates on Wednesday, or will the S&P surprise everyone and just take off to new highs again? What we do know is that the roll volumes have concluded, and the ES Money Maker chart showed 4 sells all grouped together at the highs of the day.

I am short at the highs and I am going to ‘try’ and hold for a few days. There really isn’t much one can say. The S&P does the same thing every day, it pulls back a little early, and then rallies all day. After it goes up and stops, it sells off a few handles and back and fills, then it goes higher again. The real deal here is money going out of bonds and into stocks. That ‘switch’ has been going on hot and heavy for a few months now.

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

• In Asia 6 out of 9 open markets closed lower: Shanghai Comp -2.47%, Hang Seng -1.44%, Nikkei +0.84%
• In Europe 6 out of 11 markets are trading lower: CAC +0.01%, DAX -0.13%, FTSE -0.31% at 6:00am ET
• Fair Value: S&P -5.89, NASDAQ -0.86, Dow -64.36
• Total Volume: 1.0m ESZ, 1.6m ESH and 21k SPZ, 26k SPH traded