S&P 500 Futures & The Mid Month Rebalance Higher

Bears Say Hello To Mid Month Money

Yesterday was a perfect example of understanding how the daily clock and monthly time cycles work. On the 15th of the month, or midmonth, we track the rebalancing of equity portfolios, and yesterday they were buying.

Thursday, the S&P 500 futures opened at 2116.50, up seven ticks from the prior close, and made a low of 2114.50 just after 8:45. After that they began to charge higher and never looked back. It was one buy program after another, and it was one day that MrTopStep decided not to fade the rally.

Every time it looked like the ESZ6 may get weak and pull back, buyers would come right back in. This buying pressure eventually pushed the benchmark futures up to 2144.50, 28 handles from the open, before settling the regular session at 2138.00, still up 21.50 handles, but 6.5 handles off the highs.

With the firm run up in equities over the summer, and now the prices being the lowest in two months, it looks like some of the temptation and urge to pick up some marked down stocks were too strong to resist. This sell off has indeed been noticeable, but in reality, outside of last Friday there has not been a sell off. It was a single day event, thus far, that has lead to price consolidation this week. The “feel” of desperate sellers has been lacking. The enormous run on sell stops has been lacking as well. At this point, September is starting to fail bears who had hoped for another correction, but now see the S&P 500 around 2% from all time highs at the close.

Real Volatility Still Absent

As much as we would like volatility, especially after one of the slowest summers on record, we must give way to the fact that this has been a dip buyers market in the days of Fed induced easy money after the March 2009 low. Over the last 12 months, every time equities looked vulnerable to where maybe there was no going back to new highs, buyers came in, buy stops were run, and new highs were made. Very few of us expected new highs right after Brexit but the resilience of bulls cannot go unnoticed.

I’m not sure if anyone knows what the next move will be. Few expected the weakness from Brexit to be bid back up in a matter of a few sessions, and the selling this week is just noise. I believe in seasonals and stats, but I have found that when everyone is looking at the same pattern, often it fails and results in disappointment. I think that with the slow summer, perhaps too many of us began to look to the future.

Knowing that volatility picks up post Labor Day, we expected some selling and a real shake, and it’s possible this won’t come until traders start throwing in the towel. Next week will be the Fed meeting and Bank of Japan, then the following Monday will feature a Presidential debate. As we get closer to elections, and end of the year with Fed talk, it’s likely that things don’t completely quiet down soon.

While You Were Asleep

Overnight equity markets in Asia rallied as many of the markets, including Shanghai and Hang Seng, were closed. When Europe opened up equities began to turn as all indexes across the pond are trading moderately lower this morning. The S&P, which traded sideways during much of the Asian session, made a 2137 high just after the globex open. That high was tested up to 2136.25 early in the Euro session before taking a dive down to 2126.50 with European stocks at 5:30 am cst. The time is currently 6:07 am cst and the ESZ has last printed 2127.75, down 10.25 handles, on volume of 185K.

Going into today’s cash open, the control of the weekly close will be telling. Last week the bears controlled the close of the week. Buyers controlled this week’s open, and at the moment, it looks like this week’s volume will at least be the second highest in 52 weeks. If two million mini’s trade from here, it will be the highest volume day in a year, while if the market closed today, price would have essentially moved nowhere from the open.

In Asia, 6 out of 6 open markets closed higher (Nikkei +0.70%), and in Europe 11 out of 11 markets are trading lower this morning (DAX -1.06%). Today’s economic calendar includes Quadruple Witching, Consumer Price Index, Consumer Sentiment, Baker-Hughes Rig Count, and Treasury International Capital.

Our View

Friday’s are the most difficult day of the week to fade an intraday trend. If the ES continues lower after this mornings 8:30 cst cash open then it may be worth an attempt to trade smaller size and find an early low. If that doesn’t work then selling rallies will likely be the path of least resistance. It’s the close of the week, and if bears want to flex their muscles, they will push this index below last Friday’s close. If they really want to impress, we will see a trade below 2100.

‘MrTopStep BootCamp’

I delayed the MrTopStep BootCamp for one week because with the markets moving so much we wanted to extend the offer. This bootcamp is going to offer new talent on the trading and technology side. Dave Wienke from POINT.786 is on the schedule a few times to go over his technical service and how it can help your trading. Also, Anthony Stavros from CQG will be demonstrating the platform and going over the newest product releases. It’s an exciting time at MrTopStep, and with volatility picking up, the September quad witch, and the end of the 3rd quarter just around the corner, there could be no better time to sign up. Below is the full week schedule of the boot camp. I hope to see you in there next Monday.

Thanks,
Danny ‘DBOY’ Riley

MrTopStep September Bootcamp is right around the corner. Sign up here to reserve your spot.

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

• In Asia 6 out of 6 markets closed higher: Shanghai Comp Closed, Hang Seng Closed, Nikkei +0.70%
• In Europe 11 out of 11 markets are trading lower: CAC -0.93%, DAX -0.91%, FTSE -0.20% at 6:00am ET
• Fair Value (Dec): S&P -6.92, NASDAQ -5.17, Dow -84.37
• Total Volume: 400k ESU and 10k ESU and 2.3mil ESZ and 4.6k SPZ traded

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