What can we say about yesterday’s trade? On the heels of an equity rally in Asia and Europe as a response to Tuesday’s 2%+ rally, Wednesday’s trade turned into a range-bound chop fest. I said that often times after a strong higher trade, the futures tend to go sideways to lower. That’s exactly what the ESH16 did yesterday. After making a globex high of 1984.50 it turned lower into the cash open trading, as low as 1966.25 at 9:30 CT, before grinding higher the rest of the day, making it back to exceed the globex high by a single tick as the futures were closing at 3:15 CT.
All in all, bulls have to be satisfied with themselves as they maintained this rally for yet another day, while bears were unable to gain any traction offering the equity indexes early. However, as we await tomorrow’s non-farm payroll number, we are looking for some S&P weakness, either before or after the number; and if today trades higher, then we could potentially see a bus too full/walk away NFP that offers the market lower post NFP.
It’s back to the old adage I have used often in recent years – too high to buy, and too firm to sell. Yesterday the TRIN indicator closed below the 50.00 level at the same time that oscillators, such as McClellan and Zweig, appeared to be overbought; and the put/call ratios tend to show a market that is overly optimistic. Does this mean that the market will sell? Not necessarily! For those looking at these extreme sentiment and technical levels as suggesting that the equity markets cannot continue to rise, all one needs to do is look back to October, when in spite of severe overbought indications, the markets maintained a strong rally on the heels of a 10% correction.
Could we see this type of price action again? It’s possible, as the lower volume seasonal strength comes into play. However, when looking at the longer term charts, it seems like the S&P 500 will likely make a lower high at some point, perhaps around the 2050 level where institutional bearish sentiment was so strong last year.
Overnight the futures traded another low volume and relatively tight range between 1978.50 and 1987.75. I already spoke to one large system trader this morning who said, given the overnight circumstances, that they will not be trading today, and I expect he is not the only one.
In Asia, 9 out of 11 markets closed modestly higher (Shanghai Comp +0.35%), and In Europe 9 out of 12 markets are trading modestly higher this morning (DAX -0.17%). Today’s economic calendar starts with the Weekly Bill Settlement, 52-Week Bill Settlement, Chain Store Sales, Challenger Job-Cut Report, Jobless Claims, Productivity and Costs, Gallup Good Jobs Rate, PMI Services Index, Bloomberg Consumer Comfort Index, Factory Orders, ISM Non-Mfg Index, EEIA Natural Gas Report, Rob Kaplan Speaks, 3-Month Bill Announcement, 6-Month Bill Announcement, 3-Yr Note Announcement, 10-Yr Note Announcement, 30-Yr Bond Announcement, Fed Balance Sheet, and Money Supply.
Unenjoyment Friday
Our View: With NFP tomorrow, we expect the trade today to be more of a wait and see approach. There could be some last hour positioning into the close, but all in all, we expect to see a similar trade from yesterday with a choppy personality that leads to a range bound trade. Given this, we believe the edges of the overnight trade make for decent fade areas in today’s earlier trade, and consider buying at the 1977 area while selling the 1988 area. What we will avoid today is grasping at straws and trying to create something that is not there. Buy the dip, sell the rally, take a profit and call it a day.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed modestly higher: Shanghai Comp +0.35%, Hang Seng -0.31%, Nikkei +1.28%
- In Europe 9 out of 12 markets are trading modestly higher: CAC -0.17%, DAX -0.07%, FTSE +0.25% at 6:00am CT
- Fair Value: S&P -1.77, NASDAQ -1.60, Dow -19.91
- Total Volume: 1.8mil ESH and 7.7k SPH
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