Yesterday’s busy economic calendar was not enough to avoid the pain trade. Once again, the S&P 500 futures traded in a quiet thin-to-win session, on volume of just under 1.35 million. The day opened at 2175.25, up 2.75 handles, and the low was made at 2174.00 on the open. The index quietly pushed up for most of the day, giving a couple small pullbacks, on it’s way to a new December contract high at 2185.50, before closing three ticks off that high. We call it ‘thin-to-win,’ and many times the best approach is to buy the open, or an early low, and hold all day as the grind eventually moves the futures higher.
What else can we say about the price action? At least the ESZ traded in a range beyond 10 handles. It was the second highest close ever for the S&P’s on a continuation chart, and it is starting to look like the price action after the June Brexit rebound. Selling seems to dry up, the ranges are small, the index keeps pushing higher inching along. There is not much that we can do about it except find a place to buy and hold until it goes higher.
I’m not convinced the holiday seasonality is going to follow the historical script tick for tick. However, I cannot ignore what is happening, and that the S&P now has its sights on a 2016 close above 2200. If the historic seasonal rally does take charge, we are going to see more of the same going into the end of the year.
The only things that can ruin Santa’s arrival are Trump and the Fed. Obviously, the expectations are for another December hike, and this week’s docket of Fed speakers have reiterated that. At this point it would be a shock for it not to happen. Last year the market did expect for a minimum rate increase, however, the equity futures got weak through the month’s end and sold off in January until the February 11th low. It will be interesting to see how the markets respond to next month’s hike, which is now less than a month away. As far as “the Donald” is concerned. After the election he has backed off some of his extreme rhetoric and appears to be trying to find known and respected individuals for cabinet positions. However, some of his tune has seemed to get stronger, including a repeal of the Dodd Frank Act.
At the end of the day, uncertainty surrounding such a proposal may catch the markets with uncertainty. MrTopStep thinks there are many more areas to prioritize a new administration, and it would be poor judgement for Trump to begin by changing financial regulation that came about in response to 2008. In any event, the Fed and Trump are the only items we see that may spook this market, and I don’t think Trump will really be the market mover until next year potentially. So from here, it’s all eyes on the Fed as the time market between now and Christmas, and S&P 500 2235.
Overnight there was more of the same in worldwide equity markets. A mixed trade in Asia and Europe, but one that is leaning lower. The S&P futures opened globex at 2184.00 and traded up to 2185.50 in the opening 15 minutes. The ES then sold off early in the Asian session before traveling back to the overnight open, and into the Euro open. The futures failed there and again moved lower to 2176.50, just above yesterday’s cash open, but found support leading to a trade back up to 2183.50, just below the open, with volume of 125k as of 6:20 am cst.
In Asia, 6 out of 11 markets closed higher (Nikkei +0.59%), and in Europe 7 out of 11 markets are trading lower this morning (FTSE -0.47%). Today’s economic reports includes James Bullard Speaks, Esther George Speaks, William Dudley Speaks, Leading Indicators, Kansas City Fed Manufacturing Index, Baker-Hughes Rig Count, Robert Kaplan Speaks, and Jerome Powell Speaks.
Our View: Today’s expiration stats are positive, up 21 of the last 32 years, including 15 of the last 22, and the ESZ just moved back to unchanged on the day. The area’s to the upside are the 2191.50 all time high print on the mini, and then 2200. I don’t think we will get to 2200 today, but it’s in the cards for next week. We have to lean on the patterns established this week today. That would be to buy the open for aggressive traders, or buy an early low as a more conservative approach and try like hell to hold into the afternoon, in this environment, making 7-8 handles on a 10 handle range day is good enough.
Download all of the November expiration stats here
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed higher: Shanghai Comp -0.49%, Hang Seng +0.37%, Nikkei +0.59%
- In Europe 7 out of 11 markets are trading lower: CAC -0.51%, DAX -0.31%, FTSE -0.47% at 6:00am ET
- Fair Value: S&P -2.24, NASDAQ -1.29, Dow -29.79
- Total Volume: 1.35m ESZ and 3.5k SPZ traded
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