Thursday, the S&P 500 futures surged for the 11th day out of the last 16. A mix of economic and earnings reports, and comments by Mario Draghi from the ECB saying the door was open for further quantitative easing to expand its stimulus measures, helped push the futures up to 2023.50 during pre-market trade. There was a 6 handle pullback down to 2017.75 prior to the cash open before a relentless rally took the S&P futures all the way up to 2056, a 38 handle rally. Wednesday’s sell off and Thursday’s rally proved to be just another knock down followed by another short squeeze but the Chinese added fuel to the fire this morning when the PBOC lowered interest rates. After pulling back down to 2053.25 in Globex last night the ESZ15 pushed back up to the 2062 area and then all the way up to 2074.50 after the rate cut. As of this this morning the S&P has gained over 11% from its August 24 1831 low, or up 244 handles from the low.
THINGS GO UP / THINGS GO DOWN
Traders had been waiting weeks for the S&P to sell off, and when it did on Wednesday, it ‘seemed’ like things had started to change, but in a sharp reversal of Wednesday’s weakness the S&P came roaring back, took out the 2034.25 Globex high from Wednesday and continued its push higher. This time the pull backs were almost nonexistent. While my call in yesterday’s Opening Print was to let the ES rally and sell it, I also put this out in the forum and on the Twitter feed:
Dboy1 ( 9:29:26 AM ET ): I want to see the first 20 mins of this.
Dboy1 ( 9:29:50 AM ET ): lots of earnings out #Surprises.
Something told me that it could be a trap selling the early rallies, but it was not just the early rallies, it was all the rallies! Clearly traders saw Wednesdays weakness as the markets being overbought and setting up for a pull back, but when bids started showing up Thursday on the open, after the open, and on every pull back, we knew it was going to be a long day for the short sellers. The mutual funds have been buying everyday and we see it on the cash closes. That didn’t change on yesterday’s close. Just because the ES sold off doesn’t mean the mutual funds are going to stop buying. They buy when the markets are going up or down, and when the markets do sell off they get to buy ‘cheap inventory’.
Just after 12:00 CT the ESZ15 got hit by a wave sell imbalances that pushed the futures all the way down to 2034.50, and then rallied up to 2054.00 in the final hour before settling at 2051.75, up more than 40 handles. The futures jumped higher after the the 4:00pm ET stock exchange close when Amazon.com reported a profit, and Microsoft topped Wall Street expectations when the stock surged 5% after the close.
While not trading it all that well, I have been consistent on my call that the S&P would rally and go back to the 2150 to 2200.00 level at year end. Like many traders that thought the ES would rally, few of us thought it would go so far, so fast.
CHINA RATE CUT
In Asia, 11 out of 11 markets closed higher (Shanghai Composite +1.30%), and in Europe 12 out of 12 markets are trading higher this morning (DAX +3.06%). Today’s economic calendar includes PMI Manufacturing Index Flash, and earnings from Procter & Gamble Co (PG), Thomson Reuters Corp. (TRI), and Whirlpool Corp (WHR).
SELL THE NEWS
Our View: As you know I am pretty much always a bull. Yes, there are times when I say the markets are going down, but I’m always looking for the low. I am always looking to catch that falling knife, but it has not been easy to do lately, especially with the ESZ up nearly 240 handles from its Aug 24th 1831 low, up almost 210 handles from it’s late September low, and up as much as 22 handles this morning after the BPOC cut interest rates. For many that trade the S&P, me included, we keep looking for a level that the S&P can pull back from but that trade has been a disaster. It’s been a ‘buy breaks’ market for the last 4 weeks. Our view is we are blown away at how far the ESZ has gone/ We think this is a good chance they sell the news today!
As always; please use protective buy and sell stops when trading futures and options.
Tune into MrTopStep Radio this morning for a Surprise Offer from Danny Riley!!!
- In Asia 11 out of 11 markets closed higher : Shanghai Comp. +1.30%, Hang Seng +1.34%, Nikkei +2.11%
- In Europe 12 out of 12 markets are trading sharply higher : CAC +2.68%, DAX +3.01%, FTSE +1.62% at 6:30 am CT
- Fair Value: S&P -6.96, NASDAQ -10.09 , Dow -84.86
- Total Volume: 2.1mil ESZ and 5.2k SPZ
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