S&P 500 Futures: Just Another Day At The Office

Index Futures Net Changes and Settlements:

Foreign Markets, Fair Value and Volume:

• In Asia 5 out of 11 markets closed higher: Shanghai Comp +0.91%, Hang Seng +0.43%, Nikkei -0.44%
• In Europe 9 out of 12 markets are trading higher: CAC +0.07%, DAX +0.40%, FTSE -0.41%
• Fair Value: S&P +1.78, NASDAQ +13.31, Dow -10.56
• Total Volume: 1.5mil ESH & 1.6k SPH traded in the pit

Today’s Economic and Earnings Calendar:

Housing Starts 8:30 AM ET, Jobless Claims 8:30 AM ET, Philadelphia Fed Business Outlook Survey 8:30 AM ET, Bloomberg Consumer Comfort Index 9:45 AM ET, EIA Natural Gas Report 10:30 AM ET, EIA Petroleum Status Report 11:00 AM ET, Fed Balance Sheet 4:30 PM ET, and Money Supply 4:30 PM ET; Fedspeak — Loretta Mester Speaks 6:05 PM ET.

One Day Drop And A Big Pop; Dow Closes Above 26,000 and S&P Clears 2800

Yesterday, the foreign markets were quiet, but Bitcoin wasn’t. Bitcoin fell as low as $9,966 Wednesday, a 50% drop from it’s all time high. This really shouldn’t be a surprise to anyone, It’s an unregulated product, and people are now getting what they paid for.

You Just Can’t Make This Stuff Up…

After selling off hard on Tuesday, the S&P regained its losses on Wednesday. It’s all about the one day drops, and then the pop. It was all sell programs and sell stops on Tuesday, and all buy stops and buy programs Wednesday. Helping power the markets higher were comments by APPLE that the tech giant plans $350 billion in capital spending in the U.S. over five years that will create more than 20,000 new jobs.

The ES opened at the 2789.00 level, dropped down to 3785.75 in the first minute, rallied a few handles, and then got hit by a sell program that pulled the future down to 2780.50. From there, the futures rallied up to 2785.75, made a higher low by 1 tick at 2780.75, and then traded up to 2788.50 before falling back down to another higher low at 2783.75. After the move down, the ES double topped at the 2788.50 level, made another higher low at 2785.00, and then shot up to 2793.50, three ticks off the globex high.

There was another drop down to the 2791.00 level, and then the ES traded back up to the Globex high at 2794.25, triggering several big buy programs that pushed the ES all the way up to 2801.00 at 12:45 CT. By 2:10 CT it was trading at another new all-time contract high at 2809.50, up 26.50 handles, or +0.95%. After 2:00 the MiM started to show $1.34 billion to buy the ES sold off down to 2804.25, rallied back up to 2808.50, and finished the day on a small down tick at 2803.75, up 20.75 handles, or +0.75%.

This is all about sticking with the trend and following the patterns. While there were lots of 1 and 2 day pullbacks last year, most of them were immediately followed by a rally / new highs. Of the two down day days this year, both day were followed by new highs the next day.

You just can’t make this stuff up…

Keystone Charts – Bitcoin Disaster

Bitcoin is higher today after being spooked in recent days by news of regulatory crackdowns from S Korea and China. South Korean policymakers said today that they were considering closing all domestic virtual currency exchanges. Regulators have expressed concerns over digital assets due to their extremely volatile nature and worries that they could be used for illicit activity.

But, technically the Bitcoin Real Time Index holds a key support area and is up +30% today after holding its 100dma which it has not been below in more than a year. Use 12325 as initial resistance (Jan 1 low), then 13050* as pivotal.

CME Bitcoin future has 12265 as its initial key.

David Wienke
708-870-5058
www.keystonecharts.net

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While You Were Sleeping

Overnight, equity markets in Asia traded mixed, with the Shanghai Comp. holding things up at +0.91%. Meanwhile, in Europe, stocks are trading mostly higher this morning, with the DAX leading the way at +0.40%.

In the U.S., the E-Mini S&P 500 futures opened last nights Globex session at 2803.25, and traded sideways in an 8 handle range for most of the night. Currently, the ES is trading near its lows, but it’s not down much…

As of 7:00 AM CT, the last print in the ES is 2801.00, down -2.75 handles, with 150k contracts traded.

The ‘VIX Elephant’

Yesterday the Wall Street Journal did a story titled ‘Investors Leery of Another Market Shock’. The story talks about how the VIX has remained consistently below its long-term average in 2017, and goes on to talk about the CBOE SKEW index. The CBOE SKEW tracks the price of options that pay off in the event of big market moves in either direction. The SCEW hit a record high last month and has been near those levels since, marking its fifth-highest reading ever last Friday.

For the last few years almost every trader has at one point been concerned that some type of market event will push the VIX higher, causing a big downturn in the stock market, and this type of talk has gotten to a pitch level in the first 2 1/2 weeks of 2018.

A trader called the ‘VIX Elephant’, who initiated a massive bet last July, has been rolling a big bet on a large increase in the VIX. He recently rolled over his massive bet into the February contract. The volatility bet could pay out $262.5 million if all goes according to plan. While the ‘VIX Elephant’ has been wrong for 6 months, the big question is, will the bet pay off in 2018? So far it doesn’t look like he is going to be right, but with the S&P up 305% since the March 2009 credit crisis low, and no 5% pull back in the S&P since June of 2016, it seems like the likelihood of the trade being right is increasing, or the ‘Elephant’ runs out of money trying.

According to Goldman Sachs, with 371 trading days and counting, the stock market is now at its third-longest streak without a 5% pullback since 1930. Wall Street veteran, Byron Wien, the vice chairman of Blackstone Private Wealth Solutions, expects stocks to see a 10% to 15% pullback sometime in 2018. All that said, the S&P continues to charge higher. And the one day drop on Tuesday was just another great example of last years price action; one day drops and then pop.

Our View

Yesterday, we said we wanted to buy a lower open, and sell the rallies. Why I can’t follow my own instructions to take the word ‘sell’ out of my trading dictionary makes me want to kick myself in the head. We said if the ES didnt go down it could go back to 2795-2800, which was a good call, but who the hell would have thought the ES would trade all the way up to new all-time contract highs at 2809.50? I guess the guys with the better seats, that’s who. Our view is that we lean to selling the early rallies and buying weakness. 2818-2820 on TAP.

Market Vitals for Thursday 01-18-2018

[gview file=”https://mrtopstep.com/wp-content/uploads/2018/01/Market-Vitals-18.01.18.pdf”]

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

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_{Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Any decision to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.}