I think anyone that knows me has heard me say this before, and I’ll say it again; in regards to the S&P 500 futures (ESH17:CME), I have never seen anything like what we are seeing today. Well, that’s not entirely true. I saw price action like this before the 1987 Crash, and I saw it again during the 1999-2000 Tech Bubble. In both cases the S&P and Nasdaq 100 futures rallied almost every day until they crashed. The effect of the 1987 Crash took years to repair, and the 1999 Tech Bubble went on even longer.
MELT-UP
Whats causing this melt- up? I think it’s a reverse of what the PitBull said back in early 2007. I remember before the words ‘subprime’ or ‘credit crisis’ were ever mentioned, the Bull said that “there was rotten wood floating around in the market leaders, the banks and brokerage stocks.” He went on to say there was going to be an enormous shift of wealth out of the United States. He was correct on both statments, but I think whats going on is what will be called ‘The Great Unwind,’ the largest asset allocation ever out of bonds (protection) and into stocks… U.S. stocks that is.
The talk of killing some of the new regulations, large infrastructure projects, reviewing ‘old deals’ and shaking up the ‘status quo’ investing in the U.S. has not been easy. Sure the S&P is up 220% since its march 2009 low, but after the S&P sold off so much, and the credit crisis doing so much damage, the public has not been fully on board. Retirees that lost didn’t go flying back in either, but with rates set to go up, and everything from steel to minerals going up, more and more people are thinking the ‘bull market’ may have a lot more room to run. As of yesterday’s close, the Dow Jones Futures (YMZ17:CBOT) high of the day was 19,900, just 100 points off Dow 20k.
You Can’t Be a Good Trader If You Are Not Honest
I can’t make any excuses. I am, and alway have been, a perma bull, but I fell prey to the idea that (like many) the S&P had gone too far too fast. On my first bet I got paid, but on my most recent bet I got out at a loss. I started to think I knew, when in reality no one really knew, the S&P would rally so much, so fast, without a pull back. Something has changed. In the past, after the ES made a high you could feel it was tiring out.
All the rate hike talk, weak economy, the end of QE, China and Europe, have all been part of the pause, but Trump is already starting to push the doors wide open. When was the last time you heard about Obama saving jobs in the U.S.? If he did, I do not remember. That said, the markets are adjusting to the idea that the old way of doing business is not going to happen. It doesn’t matter if you are Boeing or Lockheed Martin, Trump is going to shake things up, and shake them up hard, that in itself is bullish. Investing in the U.S. is back, and protectionism is OUT. And last but not least, the tax cuts Trump is talking about are fanning the fire.
TurnAround Tuesday’s RIP
As for yesterday’s trade, it was ‘exactly’ like its been for the last 4 to 5 weeks. It doesn’t matter if the ES is higher or lower on the open. The ES rallies, does its little sell off, and then the same institutional buyers that have been pushing the S&P higher every day come flying back in buying everything in sight. The ESH17 made its way up to 2267.75, then up to 2269.00. The the last rip was up to 2273.00, before falling back to the 2266.00 area, where it back and filled until late in the day.
In the end, it’s been an incredible rally. I would say that 99% of the time the S&P always does more volume when it sells off, and in most cases volume drops considerably when the ES rallies, but that is NOT the case with this rally. Some days the volume is 1.8 million, sometimes its 2.2 million… All I can think of is the is big money chasing end of the year returns, and the way it’s being put to work tells me it’s easier for the institutions to buy the S&P than it is to pick individual stocks.
While You Were Sleeping
Overnight, equity markets in Asia were mostly sideways to lower, and Europe opened with all major markets tracking modestly lower. The S&P 500 futures traded in a quiet, sideways range between 2265.00 and 2268.25, last printing 2267.75, unchanged on the session, with volume at 138k as of 6:33 am cst.
Asia and Europe
In Asia, 7 out of 11 markets closed lower (Shanghai -0.46%), and in Europe 11 out of 11 markets are trading lower this morning (DAX -0.22%). Today’s economic calendar includes MBA Mortgage Applications, PPI-FD, Retail Sales, Industrial Production, Business Inventories, EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, and the Fed Chair Press Conference.
Fed D-Day
Our View: Today should be that last big show of 2016. Is the Fed going to raise interest rates? I fully expect they will. Will there be more hikes over the next year? I expect there will be. Aside from the FOMC forecast and press conference, we also have a decent economic schedule, retail sales and the API. It’ been a long year of ups and down for me. I started out the year making money, but it didn’t end that way. As I said yesterday, in order to be a good trader you have to be honest about your profits and losses. I make no excuses. Most of the time when I lost it was because I was breaking my own trading rules.
Our view is to buy the early weakness and sell the rallies today. While I think the 2273.00 high may be good for now, I still have 2290 in the back of my mind. According to the S&P cash study, the Wednesday before the December options expiration has been up 17 / down 15 of the last 32 occasions, and tomorrow has been up 14 / down 18 of the last 32. Today and Thursday are the weakest days of the week.
Download all of the December expiration stats here
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets closed lower: Shanghai Comp -0.46%, Hang Seng +0.04%, Nikkei +0.02%
- In Europe 11 out of 11 markets are trading lower: CAC -0.49%, DAX -0.22%, FTSE -0.10% at 6:00am ET
- Fair Value: S&P -5.00, NASDAQ +1.43, Dow -59.06
- Total Volume: 1.0m ESZ, 2.3m ESH and 25.8k SPZ, 19.6k SPH traded
FREE Webinar Tomorrow
Join Danny Riley as he hosts a panel of very special guests to discuss how the S&P500 will react to the first year of Trump’s presidency.
Start time for this webinar is Thursday, December 15 at 1:00pm CST… Don’t Miss Out!
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