The S&P 500 futures rallied right off the open yesterday. The early high came in at 2168.00 and then sold off slightly. As day two of the Federal Reserve meeting approaches there are only two things we know for sure. The first is that the S&P is not pulling back much, and the second is the total lack of volume.
Its 2:35 CT and the ESU16 has been trading in a narrow range all day. After a few sell off attempts and a few higher lows the MiM (MrTopStep Imbalance Meter) is showing over $250 million to buy. The mutual funds have been putting money back to work in the stock market for the last several weeks and there seems to be no shortage of buyers. At 2:45 CT the NYSE stock imbalance showed MOC BUY $ 620 million, that’s nearly $3 billion to buy in the last three trading days. The guys with the ‘better seats’ win again.
Nasdaq chart
Bond chart
At the end of the second quarter the big investment banks and mutual funds quarterly rebalance was to buy stocks and selling bonds. There has not been much let up in either market, but as the last trading day of July approaches, MrTopStep thinks there could be a reverse of the what we saw at the end of June. We will be looking for a possible ‘walk away’ and a month end rebalance of buying bonds and selling stocks.
Yesterday, the S&P 500 followed similar price action from Monday. While the ESU did rally on the open, trading up to 2168, it seemed the bottom fell out mid morning and the index futures dropped to 2154 which was a huge move for the recent week’s price action. John Monaco, a NYSE floor broker in the IMPRO, came on the chat telling us that the chatter was that the drop was due to a very large sized sell program in stocks on thinner liquidity and that was responsible for the push lower.
We could note that corresponding markets were not showing risk off and the ESU began to hold a small bid midday trading back up to the 2161.50 open and then to the weekly pivot at the 2163.50 area that William Blount in the room has been pointing out as the price of the week.
Overnight, global equity markets continued their bid on top of central bank optimism from the Fed and Bank of Japan. While most of the Asian and European markets maintained a rally, the S&P 500 futures (ESU6:CME) traded in another tight range between 2163.75 and 2169.25 and is currently trading at 2167.00 up a handle on globex volume of 115K at 5:45 am cst. Right now in the S&P futures it’s the same song, as the PitBull calls it “water in the bathtub” price is slashing from one side to another, back and forth and this tub is small. 2155-2160 is demand and 2165-2170 is supply.
After today, one would think that the range is going to be extended higher or lower.
In Asia, 8 out of 11 markets closed higher (Nikkei +1.72%), and In Europe 10 out of 12 markets are trading higher this morning (DAX +0.71%). Today’s economic calendar includes MBA Mortgage Applications, Durable Goods Orders, Pending Home Sales Index, EIA Petroleum Status Report, 2-Yr FRN Note Auction, and the FOMC Meeting Announcement.
Our View: The Fed rally has a strangle hold on the S&P. After a 190+ Handle rally in one month the S&P has not corrected at all. Today is the final day of the Fed’s two day meeting. While I know the Fed is itching to raise interest rates, I just don’t think this can happen until at least September and possibly beyond. After the fed announces its interest rate plan the BOJ will have to make a decision to add more quantitative easing or stand pat. My guy says they will add more QE because of all the unknowns surrounding Brexit. While the economic number have improved in the US , Europe and Asia are not seeing the improvements we are seeing in the US. Our view is things should go very quiet before the fed headlines hit the tape at 1:00 cst. Our view remains the same, sell the early rallies and buy weakness. We still think there is good possibility of a pull back / sell off but we have to admit the ESU16 is back and filling. That’s not good for the bears.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 8 out of 11 markets closed higher: Shanghai Comp -1.91%, Hang Seng +0.40%, Nikkei +1.72%
- In Europe 10 out of 12 markets are trading higher: CAC +1.38%, DAX +0.71%, FTSE +0.42% at 6:30am ET
- Fair Value: S&P -5.90, NASDAQ -6.88, Dow -78.11
- Total Volume: 1.6m ESU and 4.5k SPU traded
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