Bears Drop The Ball
If there was ever a time of ‘matching patterns,’ it’s been over the last three days. Everyday this week the ES opened higher, rallied, sold off and then bounced. The U.S. Federal Reserve did not disappoint, no rate increases in September, and possibly not at all in 2016. This was good news to the bulls, who have pushed off the 2100 low from last week back up to the September 9th high, after bears were unable to make new lows during cash hours.
Now it looks like the selling never happened. The ESZ is once again closer to 2200 than 2100. Key resistance and technical levels were taken out, and bears ran for the hills. It seems like every time the markets go down, bulls come back playing hardball, leaving bears in worse shape than before.
All Buy Programs and Buy Stops
In the early going the ESZ16:CME rallied up to an early high of 2144.25. Eventually the ES gave up to the downside, down to a daily low of 2131.50, an hour after the Euro close. That’s when the guys with the ‘better seats’ showed up.
The public had it wrong. Most people thought after the Fed announced its was not raising interest rates that traders were supposed to sell the news… But when Yellen started explaining that the Fed was back to being data dependent, and that it’s possible there may not be a rate increase in December, the money started piling back into stocks.
As the headlines hit the tape, and Yellen spoke, the S&P 500 futures exploded to the upside. We have to admit that we saw the early highs and sold. Then, we saw the lows and bought, but we never thought the S&P futures would rally so much.
Globex & World Markets
Overnight markets in Asia saw a bid after the U.S. equity rally on Wednesday. When Europe opened up the DAX and FTSE screamed higher. This helped the S&P 500 futures, which traded in a two handle range for most of the globex session, rally hard after Europe opened up. The ESZ bid up to 2164.75, and is currently sitting just a couple ticks off that high at 7:00 am cst, up 8.00 handles on volume of 150K.
Still A Dip Buyers Market
It’s starting to look like the days of summer. While there has been decent volume in September, and even during the summer, the globex volume has been extremely light. The feeling is that there is not a lot of participation. After the post Brexit 1980 low buyers stormed back with a vengeance, and sellers virtually gave up, as shorting rallies became a futile task. This price action appears to be manifesting itself again after the 2100 globex low from last week.
Everyone was tired with one of the slowest summers on record and were hoping the seasonally volatile month of September was going to rock the markets. For a moment, the Friday after Labor Day, it looked like their dream was coming true, but ultimately the sell off failed. This leaves MrTopStep believing the bus was too full expecting Autumn volatility. When everyone wants the same thing, typically the markets do otherwise.
When Will Volatility Return?
Much has been made of the historical calendar going into this week. It suggests that this is seasonally the worst performing weak in the worse performing month. In fact, yesterday was seasonally the worse performing day of the month. At the end of the day, the dip buyers showed what they have been telling us for years now, that they still have say and control over this market. The reports of their decline have been untimely and inaccurate.
Going into today’s session we don’t expect much from the S&P. It would be normative for it to take a breather, but if this small bid overnight holds up, it will continue to be a good sign for bulls. Eventually, traders who have been exhausted by a years worth of unusual price action will once again give up, and when that happens maybe volatility will return. On our calendar is the first Presidential debate next week, then the October Fed meeting, followed by the November election. At this point, it is possible we don’t see volatility pick up until after the election..
For Today
In Asia, 9 out of 10 markets closed higher (Shanghai +0.54%), and in Europe 11 out of 11 markets are trading higher this morning (DAX +1.89%). Today’s economic calendar includes the Weekly Bill Settlement, Jobless Claims, Chicago Fed National Activity Index, FHFA House Price Index, Bloomberg Consumer Comfort Index, Existing Home Sales, Leading Indicators, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 2-Yr FRN Note Announcement, a 2-Yr Note Announcement, a 5-Yr Note Announcement, a 7-Yr Note Announcement, a 10-Yr TIPS Auction, Fed Balance Sheet, and Money Supply.
Our View: The Fed caught the shorts with their pants down. It was a mammoth short squeeze that started 30 minutes before the Fed headlines came out and lasted right into the futures close. This morning we have a busy economic schedule to get past, and it includes everything from housing numbers to jobless claims. Our view is that there should be at least another half day up, but we are also going back to our rule that after a big up day the ES tends to go sideways to down. Our view is to sell the early rallies and buy the late weakness.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 10 markets closed higher: Shanghai Comp +0.54%, Hang Seng +0.38%, Nikkei closed
- In Europe 11 out of 11 markets are trading higher: CAC +1.88%, DAX +1.89%, FTSE +1.28% at 6:00am ET
- Fair Value: S&P -7.73, NASDAQ -6.84, Dow -92.66
- Total Volume: 1.8mil ESZ and 4.8k SPZ traded
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