After Wednesday’s volatility surrounding the Trump press conference, there was a sharp rise in VIX option trading. Volume was doubled, with the call side picking up significantly, according to what was reported by Schwab. As we said yesterday, it’s Trump’s market for now, and the institutional unease surrounding the pre-inauguration press conference only gave more evidence to this.
As buyers of the S&P since the election needed to hedge with VIX options, now that the markets are again feeling top heavy at 2270, they also saw fit to sell off some stocks early in the day. On the 8:30 am cst open the ESH printed 2264.50, down six handles on the session, and from there sell programs took over.
Sellers were hitting bids all the way through the European close as the benchmark futures pushed sunk down to 2248.50, 23 handles from the prior day’s high, and 16 handles from the open. It was a classic move of big money either dumping stock early on the open, or longs selling S&P’s to hedge equity longs. Either way, the elevated risk perception that caused VIX options volume to spike on Wednesday, carried over to Thursday’s equity sell off.
However, after a 28.50 handle sell off from Friday’s all time high, the value systems came in and started buying. Face it, since the election, 25 handle pullbacks have been hard to come by, and as long as this market is in an overall uptrend, it’s likely that these kind of pullbacks are a gift. So, while some funds were removing risk, others saw value and began to bid up the S&P’s in the afternoon, and by the end of the day the S&P futures had ventured into positive territory. The afternoon bulls were just as strong as the morning bears.
At the end of the day, traders were left with yet another close in between 2260-2270 as the water in the bathtub again spilled over some, but the tub remains full. The truth is, there is no better place to put cash, from a market perspective, than into equities, as Treasuries, metals and energies are all weaker over the last few months. While the pullback may happen, it will likely be short lived.
According to Ryan Detrick of LPL Financial, the last three times the S&P 500 were up over 1% in the first five days after an election, the S&P has gained between 27-31%. For now, the January Barometer suggests that as January goes, so goes the rest of the year, and it is looking good.
While You Were Sleeping
Overnight, Asian markets were mostly lower, but the Nikkei did a see a rebound, and in Europe buyers came back in today, pushing most of the major markets higher. The S&P 500 futures traded in a tight range between 2264.25 and 2267.75, 3.5 handles, on low volume of 85k as of 7:15 am cst.
In Asia, 7 out of 11 markets closed lower (Nikkei +0.80%), and in Europe 8 out of 11 markets are trading higher this morning (DAX +0.57%). Today’s economic calendar includes PPI-FD, Producer Price Index, Retail Sales, Harker Speaks, Business Inventories, Consumer Sentiment, and the Baker-Hughes Rig Count.
Our View
It’s been a quiet trade overnight with low volume, but there are some big economic numbers due out at 7:30 am cst. Everyone wants the S&P’s to break out of the range, and as we always say, the market tends to do what screws the most people. Friday’s can be difficult days to trade, and our call is to not fight a trending market today.
We like trying to buy an early dip or sell the rally midday, thinking that it’s going to be a quiet Friday between 2260-2270. However, if 2270 somehow converts to support today, then we want to be buy and holders above, and if 2260 becomes resistance, then we want to be sellers only. Keep in mind, that Monday is closed for the Martin Luther King Jr. holiday, so some mid month rebalancing could occur today.
Download all of the January expiration stats here
Market Vitals for Friday 01-13-2017
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Morning Bond Numbers
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets are trading lower: Shanghai Comp -0.21%, Hang Seng +0.47%, Nikkei +0.80%
- In Europe 8 out of 11 markets are trading higher: CAC +0.85%, DAX +0.57%, FTSE +0.48% at 6:00am ET
- Fair Value: S&P -5.41, NASDAQ -4.10, Dow -79.09
- Total Volume: 1.7m ESH and 2.8k SPH traded
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