The S&P rallied 1.3% before the Brexit results came in on June 23rd, then the S&P fell more than 6% over the next two trading sessions. After the 6% drop the S&P rallied over 10% to the August high. We do not know what the S&P is going to do today but we guarantee there is going to be an extremely high level of volatility. Remember, what goes up…must come down.
Friday, Oct 28th, it was FBI director James Comey saying the Clinton email investigation was ongoing, and the S&P sold off. This past weekend the head of the FBI came out saying there was no new evidence to warrant charges and the S&P ripped higher Sunday night into Mondays 8:30 am CT open. After the open the S&P futures sky rocketed higher again. Basically the FBI said ‘forget it,’ and after being down 9 straight trading days the S&P followed one of MrTopStep’s trading rules to the T that ‘it takes days and weeks to knock the S&P down and only one to bring it back.
After falling nearly 3% over 9 trading days the S&P futures (ESZ16:CME) gained +2.25% yesterday. It was a total bloodbath. With all the ‘risk off’ trade and hedging going on over the last few weeks the rally was one of the largest short squeezes of the year, and the best trading day for the S&P since March. The rally also retraced almost all of the losses from the FBI headlines that broke at 12:20 CT on October 28th when the ESZ16 was trading 2134 and fell all the way down to 2078.75 on Fridays close.
All Day Buy Program
The ESZ16:CME was ‘bid’ all day, with the exception of a few 2 and 3 handle pull backs. On Friday’s close there was nearly $1 billion to buy MOC, and yesterday they put most of that money back to work with MOC buy $875 million. The ES had pulled back down to 2119.25 late in the day, and when the MiM started showing big to buy, the S&P shot up to new highs at 2130.25 on Globex right after the 3:15 futures close. It was a brutal day for trading. With the big gap up, many retail traders (me included) tried to sell the ES, and it was one buy stop and one buy program after another. The algos that were sell heavy on Friday were buying big all day.
There are still a lot of unknowns. Even if Hillary Clinton does get elected, that does not guarantee a smooth transition. Will Trump contest the election? Will congress work with Clinton? How would Trump get along with the Fed?
Buy The Rumor, Sell The News
Back just before the day of the Brexit vote I reminded readers why we should never take any election for granted. In September 2008, it seemed like everyone knew the U.S. House would approve the bank bailout bill, but just before the vote, a few Republicans were upset by Speaker Pelosi’s comments and changed their vote. As the tally came in it became clear that the surprise was to the downside and the stock markets sold off very rapidly leading to a 777.68 decline in the DJIA. Then in July, when all polling assumed that the ‘remain camp’ would win the Brexit vote, those polls were off.
Is this the Brexit or 2008? Hardly, but with flawed and antiquated polling methods, and some respondents possibly less likely to admit that they will vote for Trump, MrTopStep thinks a wait and see approach is best. If the S&P continues to rally to buy the rumor today, we think there will be a sell the news disappointment coming later this week.
While You Were Asleep
Overnight, Asian markets were higher, and Europe has been mixed since opening. The S&P futures opened globex at 2129.00 and traded down to 2121.25 early after the Tokyo open, and from there rallied up to 2130.25 early in the Euro session. The S&P last printed 2124.75, down 4.25 handles on the session, with total volume of 144k as of 5:37 a.m. cst. This week’s calendar is light aside from the election. It’s seems like now the markets are comfortable in assuming a victory for Hillary Clinton, and in all likelihood, this is the case. There is a reasonable path for a Trump victory, but it will be very difficult to win Florida and Ohio, then four of the five between NC, CO, NV, NH and Iowa.
In Asia, 10 out of 11 markets closed (Shanghai +0.46%), and in Europe 7 out of 11 markets are trading higher this morning (DAX -0.15%). Today’s economic reports includes U.S. Presidential Election, NFIB Small Business Optimism Index, Charles Evans Speaks, Redbook, JOLTS, a 4-Week Bill Auction, a 52-Week Bill Auction, Charles Evans Speaks, and a 3-Yr Note Auction.
86% Of The S&P Has Reported Earnings
Our View: The VIX fell 17% yesterday. Talk about taking the air out of the bag. The S&P futures have rallied 52 handles from Friday’s 2078.75 Late day low. When it all plays out, the markets will react a lot more calmer to a Clinton victory than the uncertainty over a Trump win. Either way, the markets hate uncertainty, and today should be filled with it. It’s going on 9:00 pm CT and I am short 4 lots at 2123.25. The ESZ recently sold off down to 2121.25, I was bidding 2119.25, and now it’s trading 2124.75. If I buy the 2119.25’s I scratch all my bad trades from yesterday, so before I put out the view, I want to see how this plays out overnight.
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 +0.46%, Hang Seng +0.47%, Nikkei -0.03%
- In Europe 7 out of 11 markets are trading higher: CAC +0.01%, DAX -0.15%, FTSE +0.12% at 6:00am ET
- Fair Value: S&P -4.01, NASDAQ -4.74, Dow -57.14
- Total Volume: 1.7m ESZ and 9.1k SPZ traded
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