It was destined to happen. It was only a matter of time. All the back and filling, all the buy stops above the market, and all the wrong sided bets, they were all going to help set the stage for it. What is it? A big fat rip higher in the S&P 500 Futures (ESH17:CME), that’s what it was!
We said it was coming. No one ever knows the exact time, even though it wasn’t hard to see once the day’s trade started to unfold. It was one continuous buy program that helped push the S&P Futures, and the Nasdaq 100 futures, into fresh closing records. While DJIA futures (YMH17:CBT) traded all the way up to 19,882, shares of materials and financial companies led the rally.
Many traders we talked to said part of the gains were due to President Donald Trump’s moves to bolster infrastructure projects which include the revival of two oil pipeline projects—Keystone XL and Dakota Access- and called for the production of the steel pipes that would be used in the project to be made in the U.S. That wasn’t all though. He also threatened the Chinese by saying the U.S. would deny access to the Chinese made islands.
While the day did see low volume, the overall tone of the major indices we strong. There were literally no pull backs, it was one buy program after another, mixed in with buy stops. For the short sellers it was a bloodbath.
I have been bullish, I have been talking ES 2300.00+, and I have seen the stories about the Trump rally having another +5% to the upside, but my gut tells me that you have to be careful. As the new administration continues to ‘test the waters’ we can’t forget how much the S&P has rallied from the Brexit and Trump election win. While we agree that it’s important to stick with the overall pattern of pulling back a little in the morning, and then rallying, we also think there is inherent risk sitting in the weeds.
I feel strongly that there are going to be some big market let downs in 2017, and I really get the feeling it won’t take long. There is no doubt as President Trump changes trade policies there will be some major bumps in the road. My own opinion is that he is trying to run the country like he ran his firm, always telling people what to do without having all the knowledge needed to make the correct decisions.
While You Were Sleeping
Overnight, markets in Asia received a lift followed by a nice bid in Europe as the S&p 500 futures pushed higher throughout the globex session making a low of 2274.25 early in the Asian session before pushing to a high of 2283.50 at 6:50 am cst with volume at 111k and the futures up 8.25 handles.
In Asia, 10 out of 11 markets closed higher (Nikkei +1.43%), and in Europe 10 out of 11 markets are trading higher this morning (DAX +1.40%). Today’s economic calendar includes MBA Mortgage Applications, FHFA House Price Index, EIA Petroleum Status Report, a 2-Yr FRN Note Auction, and a 5-Yr Note Auction.
Our View
We have a trading rule that the ES tends to go sideways to down after a big up day. My guess would be that after such a big push up, the foreign markets will follow. This morning the CAC and DAX are both up over +1%. The firmer tone out of Europe has the ESH17 up 7 points at 2281.50. I said it a week ago, with the Trump circus in town no one is even looking at the earnings. Very crazy stuff. That said, our view is to sell the early to midday rallies, and buy weakness. If the ESH starts taking out the 2283-2285 level it could be a quick shot to ES 2290. You can take if from there.
Market Vitals for Wednesday 01-25-2017
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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 +0.22%, Hang Seng +0.43%, Nikkei +1.43%
- In Europe 10 out of 11 markets are trading higher : CAC +1.01%, DAX +1.40%, FTSE +0.31% at 6:00am ET
- Fair Value: S&P -4.72 , NASDAQ -3.71 , Dow -68.05
- Total Volume: 1.26m ESH and 9.2k SPH traded
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