The S&P 500 futures go up, and the S&P 500 futures go down, but they almost always go up quicker then they go down! Why is the price action like that? Because the short sellers all pile in at low prices, and the endless global central bank intervention is continually supporting the global stock markets. In the last two days the German DAX has risen 3.70% and the S&P has climbed over 2%.
ES 2100 Stop Short
That’s how the markets work now; get a change in sentiment, everyone crams into short positions, the markets work lower for four weeks, and then the mutual funds that saw 8 bil in net outflows start putting the money back to work. As I have said many times, when the ‘natural cash’ buyers show up and the crowd is short, the buy algos kick into gear. Since everyone is off base, and then the premium levels between the cash S&P (^GSPC:SNP) and the S&P futures widen out, the buyers push the shorts to cover into the buy stops and make up an index arbitrage buy program. I understand that index arbitrage does not move the markets like it used to, but seeing the premiums widen out, and all the buy stops above, was clearly a positive sign. After trading up to 2092.00 late, a wave of profit taking hit in the indices pushing the ES futures back do to the vwap at 2086.75, where it held the last time down.
Overnight, equity markets worldwide have seen a risk off trade, helping the S&P futures maintain a bid after an initial lower trade to the 2083.00 area. The ESM is currently trading at 2088.75, up 1.5 handles, after trading as high as 2091 this morning. Heading into this mornings 8:30 cst open the calendar is a little heavy with some releases at 7:30 am cst. It looks like the futures are marching higher to 2100, and perhaps beyond, and there is nothing to do about it. When it looks like a good time to short, it’s probably not. No need to fight this tape as it get’s closer to the Memorial Day holiday. Thin to win looks likely to play out as the spoos see a grind higher to 2100 and perhaps 2105 and 2110.
In Asia, 9 out of 11 markets closed higher (Shanghai +0.26%), and In Europe, 10 out of 11 markets are trading higher this morning (DAX +0.43%). Today’s economic calendar includes Weekly Bill Settlement, 52-Week Bill Settlement, James Bullard Speaks, Durable Goods Orders, Jobless Claims, Bloomberg Consumer Comfort Index, Pending Home Sales Index, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 3-Month Bill Announcement, 6-Month Bill Announcement, Jerome Powell Speaks, 7-Yr Note Auction, Fed Balance Sheet and Money Supply.
Our view: The ESM16 has rallied 70 handles since making its 2022.00 low last Thursday. Most of the +3.5% gain came in the last few days. Today we have a full economic schedule that includes housing numbers, also James Bullard and Jerome Powell speaking with Janet Yellen receiving an award from the Radcliffe Institute for Advanced Study at Harvard University, and then speaking with Harvard Professor Gregory Mankiw. Should the rally slow in light of that? I’m not sure, but what I am sure of is that the volume will start to drop as more people / traders take ‘extra’ time off going into the Memorial Holiday weekend. Here is the link to the CME Group’s holiday schedule. It’s my guess people start cutting back today. Are the indices overdone short term? Yes but with ‘thin to win’ in play and so many buy stops above the market it may be hard to prevent the run up from continuing. What we are concerned about is the bears that were talking lower prices last week are now talking higher prices.
CME Group Holiday Schedule
Our view remains the same, sell the early rallies and buy weakness or just let the ES fall and look for a good spot to be a buyer. There is a very big line of buy stops that start above 2093.70 and basically run all the way to 2103-2104. There is another large set of buy stops that go from 2106 all the way up to 21012-2114. On the downside we see initial support at the 2077.00 level. You can take it from there…
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed higher: Shanghai Comp +0.26%, Hang Seng +0.14%, Nikkei +0.09%
- In Europe 10 out of 11 markets are trading higher: CAC +0.40%, DAX +0.43%, FTSE +0.21% at 6:30am CT
- Fair Value: S&P -2.28, NASDAQ -1.09, Dow -26.00
- Total Volume: 1.4mil ESM and 4.1k SPM traded
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