The S&P 500 futures (ESU16:CME) closed at 2164.75, down 6.25 handles, or -0.35%. The day’s trade was another great example of the slow end of summer trade. With the futures stuck in a 40 handle trading range since the July 12 it seems like less people are trading, but volume in the S&Ps are still doing 1.4 or 1.5 million contracts a day. In most cases the end of July and the beginning of August see much lower volumes, but that was not the case last year, or this year so far. Yesterday, the total range was 12.5 handles with most of the day stuck in a 2 to 3 handle (point) range.
One of the characteristics of the S&P is how durable it actually is. With the S&P up over 250% since the March 2009 666 low, it has bent, but not broke down. When you gauge the size of the rallies and compare them to the size of the declines, it’s clear to see that at some point, be it a 80 handle drop in the S&P or a 200 handle drop, that buyers reappear. As fear abates the sellers can no longer push the S&P down.
It’s not just the stock market bargain hunters looking to pick up some cheap stock, and it’s not the big mutual and investment firms. It’s the long arm of the US Federal Reserve and the European Central Banks buying bonds and pushing borrowing cost down to zero… and Japan buying ETFs.
I know I also beat up on the market timers, and I do so for good reasons. If you are going to give advice to the public, and charge people for the product, it has to help people. The fact of the matter is that every well know market timer has, on more than one occasion, over the last several years said the ‘high is in,’ or that there is going to be a big ‘correction,’ but in reality most of the declines ended up being fuel for the fire on the upside and new all time highs.
Like I said on Benzinga’s morning radio show yesterday, and on the MrTopStep Final 45 (Periscope), zero rates create the perfect environment for stock buybacks, mergers, and takeovers. While Europe started its QE programs much later than the U.S. did, the EU’s economy remains in near recession levels.
Overnight, the news was Japan approving a $132 billion stimulus program and Asian markets trading lower, followed by very weak European markets. The ESU traded higher early in the Asian session, back up to 2171, before being steadily offered down to 2157.50 after the Euro open. Since then the ES has bounced back to 2162.00 and is currently trading at 2160.50 down, 4 handles on the session, with 165K contracts traded at 6:00 am cst.
Today’s calendar is light, and the bears are trying to make their case known early this week. With 85% of earnings concluded by the end of the week, and with the first of the month trade for August now in, the calendar may be most favorable to see some sort of trade below 2150. However, it’s still been a buyers market, and it will take a lot for that to change.
In Asia, 9 out of 11 markets closed lower (Nikkei -1.47%), and in Europe 12 out of 12 markets are trading lower this morning (DAX -1.35%). Today’s economic calendar includes Motor Vehicle Sales, Rob Kaplan Speaks, Personal Income and Outlays, Gallup US ECI, Redbook, and a 4-Week Bill Auction.
Our View: This morning in the EURO room I bought 2158.50, and now it looks like the ESU16 is trying to double bottom at the 2158 area. I’m still holding my long and have some profit room at this point. The dip buying trend is also in my favor. However, after bears controlled the Globex session, if sellers control the open and buyers are unable to make and hold an early low then we begin to see a different price event in the S&P from the last couple weeks. The index will tentatively look to sell rallies continuing to make lower highs and lower lows. Remember though, this market can sell all week and in one day push back to new highs like last Friday, so let’s not discount that either heading into NFP this week. My call from 2160 was that the next 40 handles would be lower, and at this point, there is still reason to hold firm to this.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 9 out of 11 markets closed lower: Shanghai Comp +0.61%, Hang Seng closed, Nikkei -1.47%
- In Europe 12 out of 12 markets are trading lower: CAC -1.37%, DAX -1.35%, FTSE -0.34% at 6:30am ET
- Fair Value: S&P -5.77, NASDAQ -6.64, Dow -79.82
- Total Volume: 1.65m ESU and 3.9k SPU traded
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