We are not sure why, but the bears have been getting excited lately. After a few down days, and a small pick up in volume, the S&P 500 futures (ESH17:CME) index started making a series of higher lows. The futures rallied late in the day on Tuesday, sold off on Globex Tuesday night, then sold off and ‘triple bottomed’ at the 2281.00 level. Guess what happened next? The ESH rallied up to 2291.00, completing another MrTopStep 10 handle rule.
Whether you like the S&P’s, don’t like the S&P’s, or do not have an opinion, the futures are only 10 handles away from from the big 2300 milestone.
While the stock market may be expensive, the overall price action has not changed. Europe doesn’t see to be in as bad a shape as it was. While we can credit the most recent move up to the new US administration, we do not think it’s all about the new president. The banks that have been out of favor are now one of the favorite sectors. Morgan Stanley has doubled in price since last year.
So what is driving the S&P higher? With hedge funds exposure at the highest level in over 12 months, and a no place to go but stocks mentality, it seems like the big investment firms that were not fully vested at the end of last year have employed billions of stock purchases. This feels right in line with bullish sentiment being at an 18 month high, and my idea that with a full 10 1/2 months left in the year that; 1) there will be some big moves down, and 2) the VIX will see some extreme volatility.
While You Were Sleeping
Overnight global equity markets continued their rally both in Asia and Europe. The S&P made an early low at 2287.75 just before the Tokyo open. From there the futures traded sideways to higher, before taking off higher after the Euro open, pushing up to 2296.25, and has last printed 2295.50, up 5.25 handles, on volume of 86k as of 5:52 am cst.
In Asia, 9 out of 10 open markets closed higher (Shanghai +0.51%), and in Europe 8 out of 11 markets are trading higher this morning (DAX +0.45%). Today’s economic calendar includes the Weekly Bill Settlement, Jobless Claims, Bullard Speaks, Bloomberg Consumer Comfort Index, Wholesale Trade, EIA Natural Gas Report, a 30-Yr TIPS Announcement, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 30-Yr Bond Auction, Charles Evans Speaks, Fed Balance Sheet and Money Supply.
Barclays Fed Speak Preview
St. Louis Fed President Bullard (FOMC voter) speaks: We look to Bullard’s remark for any hint on the evolution of the FOMC’s thinking on near-term trade and fiscal policy from the administration. We continue to believe the FOMC will be largely reactive to the administration’s policies.
Chicago Fed President Evans (FOMC non-voter) speaks: Evans seems comfortable with two or three hikes this year. We will be attentive to any shift in his views on near-term administration policies.
Our View
I think ES 2300.00+ is on TAP. I am not sure what will stop it. I just do not see any change to indicate a trend change. Our view remains UNCHANGED. You can sell the early to mid day rallies and buy weakness, or just go with the trend and buy weakness. You make the call…
This is a great video for traders that sit in a chair all day. Raj Mahal showed it to me. He said he has been doing it and it has really helped him. It takes a total of 10 minutes a day and can easily be done while you are trading. #HealthMatters
Market Vitals for Thursday 02-09-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 10 open markets closed higher: Shanghai Comp +0.51%, Hang Seng +0.17%, Nikkei -0.53%
- In Europe 8 out of 11 markets are trading higher: CAC +0.68%, DAX +0.45%, FTSE +0.33% at 6:00am ET
- Fair Value: S&P -3.76, NASDAQ -1.79, Dow -47.98
- Total Volume: 1.28m ESH and 3.1k SPH traded
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