The S&P 500 futures (ESH17:CME), Dow Jones futures (YMH17:CBT) and the Nasdaq 100 futures (NQH17:CME) caught a case of the Trump inauguration ‘jitters’ yesterday. While the markets closed “mixed,” there was not a lot of buying or selling going on. At 12:30 ET total volume in the S&P futures was only 675k contracts traded.
The regular session opened at 2266.75, up three ticks, and the S&P’s looked strong early trading up to 2269.50 on the open. Bookmap started to show extremely heavy offers above 2270 and the S&P’s turned lower down to a morning low of 2259.50, a 10 handle selloff, and then traded sideways midday making an afternoon high of 2265.00 before breaking down again and quickly selling to 2253.00 late in the day.
The water in the bathtub moves both directions, and when the S&P looked weak, it was the time to buy, as the futures rallied into the close from the 2253.00 low up to 2262.50. The futures eventually settled at 2261.75, down about five ticks on the session, and once again trapped into the close by the 2260-2270 price area.
As we are now only a few hours from the Presidential Inauguration, there have been many nervous traders in the market. The longer the coil winds up in this range, the more drastic it will be when it springs out. Yesterday afternoon’s selling saw the lowest NYSE TICK since mid December, and Fredrick from Schwab noted that “the 5-day avg of OCC Equity Open Interest Put/Call ratio hit 1.00 for only the 2nd time ever; high equity put accumulation going on.” He also went on to say that “Most of the data I’m watching shows high expectations and elevated anxiety; often a sign that something is about to break.”
So many of the times when everyone is expecting the same thing, the opposite will happen, that’s why I am not assuming there will be a sell off. However, as buyers seem to be drying up, one of these times, the S&P is not going to rebound off a low and will continue to make lower lows.
While You Were Sleeping
The Shanghai and Nikkei were higher overnight, but just about the rest of Asia was weaker. When Europe opened up there was buying in the markets as most European indices held a modest bid. The S&P 500 futures opened the globex session at 2261.00, made a low one tick below the open, and rallied early up to 2265.50 in the Asian session. From there the futures traded sideways for much of the night before rallying more on the Euro open, up to the 2268.00 resistance area, but has since looked weaker. Last trade in the ESH is 2265.00, up 3.5 handles on volume of 96k at 6:09 am cst.
In Asia, 7 out of 11 markets closed lower (Shanghai +0.70%), and in Europe 9 out of 11 markets are trading higher this morning (DAX +0.19%). Today’s economic calendar includes Harker Speaks, Baker-Hughes Rig Count, and John C. Williams Speaks.
Barclays Fed Speaker Preview
Philadelphia Fed President Harker (FOMC non-voter) speaks: Federal Reserve President Harker will speak on the economic outlook. Harker is advocating for both rate hikes and balance sheet normalization this year. We expect him to repeat these views.
San Francisco Fed President Williams (FOMC non-voter) speaks: We expect a repeat of his January 17 comments.
*Times reported are local NY time
Our View
Is there going to be a big shake out today? Will President Trump change the course of America, or will he learn that running a billion dollar company and all his deal making is going to teach him a lesson about running the highest office in the United States? I am not sure, but what I am sure about is the that the Dow Jones is heading toward its secondly weekly loss, but is only 270 points away from Dow 20k. The S&P futures are only 11.25 handles off its all time contract high, and only 35 handles (points) off ES 2300.00.
Yes, the index markets have pulled back, but there really has not been any ‘heavy’ selling, and that leads me to think that all the ‘sideways, back and fill’ price action may actually lead to a pop on the upside. There are a lot of sell stops building up under 2258.00 and on the upside above 2268.00. My gut says the ES may take a stab at the upside stops. Our view is to buy the early weakness and sell the rallies keeping in mind that there could be an upside bias.
Market Vitals for Friday 01-20-2017
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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 +0.70%, Hang Seng -0.71%, Nikkei +0.34%
- In Europe 9 out of 11 markets are trading higher: CAC +0.43%, DAX +0.19%, FTSE +0.07% at 6:00am ET
- Fair Value: S&P -4.96, NASDAQ -4.26, Dow -69.31
- Total Volume: 1.4m ESH and 6.2k SPH traded
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