Traders were complaining about how quiet the markets were. After a quiet globex session the S&P 500 futures, commonly know as the ES, opened at 2155.50, up 2.75 handles. There was a rally up to an early high of 2157.27 then a sell off down to a daily low at 2144.00. They began to drift higher before the OPEC production freeze headline hit the tape and crude oil futures (CLX16:NYM) rallied all the way up to $47.45. The +5.3% gain in oil pushed energy companies up +4.3% in the S&P. This helped to not only end the day sharply higher, but also higher on the month.
While most of the main stream media will say it was the higher price of oil that pushed stocks higher… MrTopStep says it was a combination of the big investment firms and mutual funds buying stocks at the end of the third quarter, and the news of a crude oil production cut with the Iranian oil minister confirming a range of 32.5 to 33 mln b/d output cut.
Stocks were already off their lows of the day but when the headline hit. Oil raced higher and the S&P went along for the ride. The jump in oil price was the largest one day move since April 8th, and the largest gain for the S&P energy sector since January 14th.
Crude Reality
The Dow Jones futures (YMZ16:CME) closed 99 points higher at 18,238, or up +0.70%. The S&P 500 futures (ESZ16:CME) closed at 2163.25, up 10.5 handles, or +0.40%. Lastly, the Nasdaq 100 futures (NQZ16:CME) closed at 4868.25, up 7.25 points, or +.18%. We thought the S&P would start going back up on the final three trading days of the quarter, but the ES started moving higher on Turnaround Tuesday and exploded higher on yesterday.
Are we surprised? No. There is money moving back into stocks, and with the ES trading sideways to down over the last several weeks, it feels like some of the hedges put on are being taken off. With so many buy stops in the S&P futures it became one gigantic buy program.
At the end of the day there was mixed analysis concerning the OPEC news. Goldman Sachs maintained their lower targets on crude. Meanwhile, Danske noted how difficult it would be for OPEC to carry their intentions out, but others, such as CIBC, upped their crude targets for 2017 by $5 bbl.
While You Were Sleeping
Overnight global equity markets in Asia and Europe launched a strong rally following the lead of the U.S. on Wednesday. The ESZ futures, however, did not participate in the globex rally. After making a 2166.75 high early in the Tokyo session, the S&P’s traded sideways to lower for much of the session. A low of 2160.75 was made late this morning and the ES is currently trading 2163.25, unchanged in a 6 handle range, with 115K contracts traded at 6:44 am cst.
There is more Fed speak heading into today’s cash session, as well as some busy economic releases. What can we say? The bulls have continued to take care of business. The bears, on the other hand, have seemed to disappear into hibernation with the same swiftness as other times in recent years.
The S&P futures are less than 1.75% from a 2200 print. Bears desperately need some double top type action at last week’s 2170 area high in order to remain relevant. Bulls would be helped by a weekly close above 2170.
For Today
In Asia, 10 out of 11 markets closed higher (Nikkei +1.39%), and in Europe 11 out of 11 markets are trading higher this morning (FTSE +1.12%). Today’s economic calendar includes Patrick Harker Speaks, GDP, International Trade in Goods, Jobless Claims, Corporate Profits, Dennis Lockhart Speaks, Bloomberg Consumer Comfort Index, Jerome Powell Speaks, Pending Home Sales Index, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, Neel Kashkari Speaks, Farm Prices, Esther George Speaks, Fed Balance Sheet, Money Supply, and Janet Yellen Speaks.
Our View: I bought the low of the day and made a ‘few handles.’ I felt the markets could go higher, but I never would have guessed it would trade up to 2163. That’s how it worked yesterday. The markets chopped in a small range for several days, then BAM, up they go. Today we have another heavy round of economic reports and Fed speak. I think the big question is, has the ES gone too far in the short run? My guess is there is still some more upside, but the rally might not be as hearty as yesterday. Our view is to sell the early / midday rally. Be patient, let the ES sell off, then buy the weakness.
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 +0.36%, Hang Seng +0.51%, Nikkei +1.39%
- In Europe 11 out of 11 markets are trading higher: CAC +1.17%, DAX +0.76%, FTSE +1.12% at 6:00am ET
- Fair Value: S&P -7.14, NASDAQ -7.03, Dow -95.04
- Total Volume: 1.7 mil ESZ and 5.0k SPZ traded
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