I have often referred to event driven lows, and even referenced the term this week. Heading into yesterday’s cash open the S&P 500 appeared to be poised for its sixth day of selling. What I knew was that given the risk off environment of this week due to next week’s Brexit vote in England, the PitBull’s low last week as well as strong June quad witch stats were dismissed, as money was headed to the sidelines. What I also knew was that at some point the Brexit would be priced in and that some book squaring rebalancing would occur before the end of the week. The VIX was up 40% while the S&P was only down 3%. A friend from a fund that specializes in selling SPX option premium was telling me he was getting bids on next week’s 1200 puts and a fantastic price on the 1500’s.
The ESU looked to be at its worst after the open yesterday. It ran even more sell stops, shook out the last of the stubborn bulls, and at the 2041 handle began to rally. The disheartening news that British politician Jo Cox had been murdered by what seemed to be a British nationalist in disagreement over her opposition to the Brexit came a short time later. From there, British PM Carney began to change his schedule for a speech overnight. Both campaigns suspended operations, and even the IMF postponed releasing an important report showing the expected economic effects of a Brexit approval. All of this led some to begin to expect that the Brexit vote would be postponed altogether, and the news algos began to take off and rip the S&P higher.
The day went from being brutal, down more than 20 handles, to going positive on the day, pushing back above 2070 for a little while. I thought that Wednesday’s MOC of over $1 Billion to sell would be put back to work in the closing moments yesterday. While I was wrong about the MOC, as it was a modest 250 million to buy, it was clear that money that had been reserved back on the sidelines wanted back in. This left the S&P less than 1% from closing positive on the week heading into a quad witching Friday with positive stats. I have often said the market does what will screw the most people, and the last week of price action shows that more clearly than ever. A positive close for the week would be what catches most people off guard.
Was yesterday’s low THE low prior to the Brexit? I do not know, but I think that it is possible. Once again, and this time on large volume over 2 million ESU16, buyers showed their resiliency reminding all the bears that this market does not give up without a fight! Overnight, global equity markets rallied off the heels of the S&P, however, after trading up to 2075 the momentum slowed down and the index is trading at 2067, down about three handles.
In Asia, 10 out of 11 markets closed higher (Shanghai +0.43%), and In Europe 12 out of 12 markets are trading higher this morning (DAX +1.08%). Today’s economic calendar includes the Quadruple Witching, Housing Starts, Atlanta Fed Business Inflation Expectations, and the Baker-Hughes Rig Count.
Our View: The stats have not behaved well this week, but expiration Friday for June has closed up 22 of the last 32 years. I think today may be a day of mixed tape as books rebalance not only for the quad witch but also continue to do so over Brexit risks. Today, I am not going to be caught trying to buy dips that are not there, but do think if the ESU opens lower that it is worth trying to buy an early dip above 2060. At the same time, an early rally can be faded under 2075, but I think there are buy stops built in above 2075.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed higher: Shanghai Comp +0.43%, Hang Seng +0.66%, Nikkei +1.07%
- In Europe 12 out of 12 markets are trading higher: CAC +1.08%, DAX +1.21%, FTSE +1.32% at 6:30am ET
- Fair Value: S&P -8.53, NASDAQ -8.01, Dow -98.25
- Total Volume: 2.4m ESU 400k ESM and 8k SPU 5.8K SPM traded
[s_static_display]
No responses yet