The S&P 500 futures (ESH17:CME) sold off in the early stages of Sundays nights globex session, firmed up a bit before the 8:30 CT futures open, rallied up to an early high of 2267.25, and then sold off down to 2255.00 all by 9:30 am. Bullish sentiment is high, the VIX is low, and the S&P futures have been stuck in a 30 handle trading range for about three weeks.
Are the markets going to remain this way? I highly doubt it! When they do break the current mold will the markets get violent? I am afraid so. The public is scared. They see the stock market going higher and want to jump on board, but many investors are nervous about what moves the new president is going to make.
By the end of the morning yesterday, the benchmark futures had traded all the way down to 2251.75. However, just like the pattern has been for recent weeks, when the S&P sells below 2260 early, the buyers come in and drive the index back up. The futures rallied from the 10:50 am cst low and pushing back above 2260, making an afternoon high of 2262.75, an 11 handle bounce, before settling the cash session at 2262.00, down 4.5 handles.
The water in the bathtub effect remains active for now. The pain area is a close between 2260-2270, and that seems to be where the S&P’s are gravitating to everyday. We thought, and hoped, that last week would begin at least some modest increase in volatility, but when we realized everyone was looking at the same thing, we started to back down from that call. As we all know, the market will often do what disappoints the most people.
With the increased SPY ETF put activity going into last week, the increased call activity in VIX options, as well as an overall equity put/call ratio that swung out of balance, it was clear that there was some serious hedging occurring. Thus, rather than selling their stock positions that they have carried and bid into since the election, it seems that fund managers would rather continue to hold positions and hedge with options and other derivatives rather than let go their stock. With that being the case, there is no one selling in enough volume to push equities lower, but with the top heaviness, there is no one left to push into new equity positions. However, we have noticed a pattern before, when the market hedges this much with options, usually higher prices come.
While You Were Sleeping
Overnight, global equity markets were mostly stronger as major markets in Asia were higher, with the exception of the Nikkei, and in Europe, currently all 11 markets are modestly higher. The S&P 500 futures opened globex at 2260.75 and traded sideways for most of the night, making a low of 2259.50 late in the Asian session, and then a high of 2264.25 early in the European session. At 7:15 am cst has last printed 2262.00, unchanged on the day, with volume at 86k.
In Asia, 8 out of 11 markets closed higher (Nikkei -0.55%), and in Europe 11 out of 11 markets are trading higher this morning (DAX +0.29%). Today’s economic calendar includes Redbook, PMI Manufacturing Index Flash, Existing Home Sales, Richmond Fed Manufacturing Index, a 4-Week Bill Auction, and a 2-Yr Note Auction.
Data Preview: US: Existing Home Sales – Barclays, SEB
Barclays:
SEB:
Our View
It seems like Groundhog Day in the S&P’s, but that doesn’t mean we can’t make money. Over the last few weeks, buying early weakness below 2260.00 has been the working trade, and as much as traders want to see the lows fail, the buyers keep coming back in. Today’s calendar picks up a little bit, but with the quiet overnight session, it likely won’t be enough to push the market into a new range. Our call is to buy early weakness around the 2255 area, or look to sell early strength up at 2267 and above.
Market Vitals for Tuesday 01-24-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets are trading higher: Shanghai Comp +0.18%, Hang Seng +0.22%, Nikkei -0.55%
- In Europe 11 out of 11 markets are trading higher: CAC +0.18%, DAX +0.29%, FTSE +0.26% at 6:00am ET
- Fair Value: S&P -4.81, NASDAQ -4.33, Dow -68.44
- Total Volume: 1.74m ESH and 4.1k SPH traded
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