The strength from Tuesday nights globex trade was immediately deflated as the cash session opened yesterday. The S&P 500 futures (ESU17:CME) traded in a 10 handle range during the extended globex session from monday night to wednesday morning, and opened the 8:30 CT cash session at 2428.50, up 3.5 handles, and started selling off right away. The initial move took the ES down to 2422.50 by 8:45. There was a small consolidation move back to 2425.25, but the sellers came right back in after that, and the ES traded down to a new low at 2419.25.
The Nasdaq 100 futures (NQU17:CME) were the main driver for the early weakness. The NQ opened the 8:30 cash session at 5612.50, up 23.50 handles, and made an early push higher. The initial rally took the NQ up to a high of 5632.00, but there was no follow through coming from the ES, and everything just fell out of bed. The Nasdaq futures traded down to an early low at 5604.25, and the ES followed. From there, it rallied up to 5625.00, but there was nothing holding it up, and at 9:15, the NQ was trading at 5595.25.
FOMC Chop
Just after 9:30 CT the ES and NQ both caught a bid on the tailwind of the Russell 2000, which rallied about 0.25%. By 9:45 the ES printed 2427.00, and then 2429.50 at 10:27. From there, it drifted back up to 2431.25, which was the globex high.
As the FOMC minutes were released, there was a knee jerk reaction to the fed’s indication that it could start reducing its $4.5 trillion balance sheet, and the ES broke down to 2426.50. The initial reaction was followed by a rally back up to 2432.25, then another sell off down to 2426.50. After that, the MiM came out showing small to BUY, and the ES began a steady grind back up to 2431.75 before backing off again going into the 3:15 close.
In the end, the S&P 500 futures (ESU17:CME) settled at 2428.00, up +3 handles, or +0.12%, the Dow Jones futures (YMU17:CBT) settled at 21422, down -14 points, or -0.06%, and the Nasdaq 100 futures (NQU17:CME) settled at 5651.50, up 62.25 points, or +1.1%.
Dow Signals
For the second time this week the Dow Jones Transportation Average made a new all time high. The transports are one of the oldest market indicators out there, and it holds just as much weight now, as it has in the past.
When the transports and industrials diverge, it signals a market top is near, but that is not the case today. The averages are trading side-by-side, and this is a bullish signal. People seem to have forgotten about this indicator, or just dismiss it, but I would suggest keeping an eye on it in the coming weeks.
From Stock Trader’s Almanac: Watch for the July Mid Month Rally
Over the last 21 years the market’s performance in July has been mixed. July’s performance tends to either be quite hot (gains in excess of 3%) or rather frigid (losses of 3% or more). Over this time period July is DJIA’s and S&P 500 sixth best performing month of the year. July is the 7th best month for Russell 1000, 4th worst for NASDAQ and the worst for Russell 2000. Average performance ranges from a loss of 1.1% for Russell 2000 to a 0.9% gain by DJIA.
Based upon the chart above, July opens strongly, but then generally goes nowhere until the eighth trading day when a mid-month rally begins. This rally then ends around the thirteenth trading day. At which time, the trend becomes lower to sideways. When comparing gains made on the first trading day to full-month performance, S&P 500, Russell 1000 and Russell 2000 are all lower on the last trading day. DJIA and NASDAQ only add modestly to first trading day gains. Even though full-month July performance is broadly positive, it was all (or the majority) the result of first trading day gains. This is why we consider July to be one of the “Worst Four Months” (July to October) of the year.
While You Were Sleeping
Overnight, equity markets in Asia closed mostly lower, and all major markets in Europe are currently trading lower. In the U.S., the S&P 500 futures opened globex at 2428.00, and traded in a 5 handle range for most of the Asian session. European stocks opened weaker, and that weakness bled over the U.S. markets. At 2:00am CT, the ES traded down to 2423.50, then briefly pulled back to 2426.50, before falling down to a new overnight low of 2416.00 at 5:20am. Since then, the futures have recovered a little, and as of 6:30am CT, the last print in the ES is 2419.50, down -8.5 handles, with 147k contracts traded.
In Asia, 7 out of 11 markets closed lower (Shanghai +0.17%), and in Europe 12 out of 12 markets are trading lower this morning (FTSE -0.61%). Today’s economic calendar is heavy, and includes the Weekly Bill Settlement, Chain Store Sales, John C. Williams Speaks, MBA Mortgage Applications, Challenger Job-Cut Report, ADP Employment Report, International Trade, Jobless Claims, Gallup Good Jobs Rate, Bloomberg Consumer Comfort Index, PMI Services Index, Jerome Powell Speaks, ISM Non-Mfg Index, EIA Petroleum Status Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 3-Yr Note Announcement, a 10-Yr Note Announcement, a 30-Yr Bond Announcement, Fed Balance Sheet, Money Supply, and Stanley Fischer Speaks.
Our View
Today’s economic calendar is heavy, but the number everyone is waiting for is tomorrow’s non-farm payroll report.
The definition of a two sided range is when sellers control the top of the range, and there are buyers at the bottom of the range. This is what we are seeing right now in the S&P 500 futures, as sellers keep resisting these short term rallies, but buyers keep bidding them up.
After hitting 2400 for the first time, on the first day of March, that level acted as a ceiling until until late May. Since then, bulls have turned 2400 into a floor, while 2440 – 2450 has become a new short term ceiling.
The PitBull always said to watch for a change of direction in the equity markets in late July, and whomever controls these key levels will control the next 50 handle move.
Our view is simple; sell the early rallies and buy weakness. Take a profit and trail a runner, and never fall in love with your positions.
PitBull: clq osc 30/-7 turns up on a close above 4779 short on a rally looks lower; esu osc -6/-1 turns down on a close below 241271; vix osc 8/2 turns up on a close above 1161
Market Vitals for Thursday 07-06-2017
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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 +0.17%, Hang Seng -0.22%, Nikkei -0.44%
- In Europe 12 out of 12 markets are trading lower: CAC -1.04%, DAX -0.67%, FTSE -0.61%
- Fair Value: S&P -1.93, NASDAQ +4.14, Dow -48.27
- Total Volume: 1.2mil ESU, and 1.9k SPU traded
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