S&P 500 Futures: Fed Minute Dip and Rip

The Dax was down -0.75% before the S&P futures cash open at 8:30 CT. On Tuesday the futures sold off and followed through on the overnight Globex session and then tumbled lower in the early part of the day’s trade. After breaking down through the six month vol window at 2170 last week the ESU made a low at 2167.75, initially held at the 2178.25 level, and then made a new low at 2165.60 midday. I was putting out flow to the IMPRO members and on social media that I thought this low would hold and there would be a pop higher. Right before the Fed minutes were released a large buy program came in and helped push the ESU up to 2176.75.

The Fed minutes were more of the same, characterized by banks as being “mixed” and Fed members being “divided” with the overall tone sending mixed signals. MrTopStep has said all along that Yellen and her crew have boxed themselves in their own rules of engagement. Their hands are tied and there will be no rate hikes. No doubt September and October are off the table. The Fed Fund Rate Futures began to show a glimpse of possibility for December, but in the world of equity markets, that is a long way off and much can happen between now and then. Here we are, going into the Fall, with equity indexes at all time highs, one of the most whacky elections in memory, and the Fed beating the same drum.

There was an initial sell yesterday down to 2172.75, but that didn’t last as the index futures came roaring back and pushed up to 2181 before the cash close, then 2182 before the 4:00 cst futures close. This market is still propped up by bulls who are keeping a bid every time it looks like the beginning of a breakdown. Somebody out there wants to keep this market making fresh, new high prints, and MrTopStep is not fighting it!

Overnight markets in Asia and markets have mostly held a modest bid higher. The S&P 500 futures have traded sideways in a 3.75 handle range between 2178.75 and 2182.50 on volume just under 100k at 6:00 am cst. It looks like the biggest move of the week was made on FOMC minutes, and it really wasn’t that big. Today’s calendar doesn’t offer anything exciting but there are several Fed speakers who will likely have a mixed, “clear as mud” message, as usual.

Bears need to hold that 2182.50 area as resistance, keep buyers from a late morning bounce, and then eye yesterday’s low into the close. This would set up a potential lower low on Friday and give bears slight momentum into the post OPEX trade. Bulls need to create a higher low very early in today’s session, and push back above the 2182.50 globex high, build a floor there and chip away to 2186 on the close. This would set up the recent Friday strength to their advantage giving them sites on a new high print to close the week.

In Asia, 7 out of 11 markets closed higher (Nikkei -1.55%), and in Europe 11 out of 12 markets are trading higher this morning (DAX +0.51%). Today’s economic calendar includes the Weekly Bill Settlement, the 52-Week Bill Settlement, Jobless Claims, Philadelphia Fed Business Outlook Survey, Bloomberg Consumer Comfort Index, William Dudley Speaks, Leading Indicators, EIA Natural Gas Report, 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 5-Yr TIPS Auction, John Williams Speaks, Fed Balance Sheet, Money Supply, and Robert Kaplan Speaks.

Our view: Today is the busiest day of the week in terms of economic and earning reports. Walmart just reported better than expected earnings. While I am still thinking the S&P trades higher into the experation I have to admit there is not a lot of market enthusiasm. We did a pole on Twitter yesterday asking if people thought the S&P would trade to 2200.00 of higher by Friday and the results were 48% said yes and 52% of those polled said no. With the futures so close I would have thought there would have been a higher yes vote. That said there are not a lot of people trading right now and I think that could be affecting the results. Our view is that ES 2200.00 is still on TAP. Sell the early rallies and buy weakness.

Download all of the August expiration stats here.

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

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• In Asia 7 out of 11 markets closed higher: Shanghai Comp -0.17%, Hang Seng +0.98%, Nikkei -1.55%
• In Europe 11 out of 12 markets are trading higher: CAC +0.14%, DAX +0.51%, FTSE +0.07% at 6:30am ET
• Fair Value: S&P -2.40, NASDAQ -0.45, Dow -25.98
• Total Volume: 1.7mil ESU and 4.0k SPU traded

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