S&P 500 Futures: QE Rules the Markets

_{ESU16 Macro Market Profile Chart}

When the markets started falling in 2007 and the government almost shut down, the Federal Reserve, in its infinite wisdom, decided to do a quick fix. Instead of taking the pain, the Fed decided on QE1 (quantitative easing), then they resorted to QE2 and QE3. Overall the plan has worked. There have been no major sell off or bear markets since.

What Kind of Meat Do the Bulls Eat?

Above is an S&P 500 futures chart that goes back to the night of June 23rd (the Thursday night of the Brexit vote). I have never pretend to say I know it all. I know that I don’t, but I do know one thing, and that’s how the US Federal Reserve and the PPT along with the quantitative easing programs in Japan and the EU have ‘totally fixed’ the markets. While it may seem like fun and games, it’s not. The overall patterns remain the same. Markets take bad news, sell off, and then in comes the global QE to support the markets. That’s the major share of the markets, but the other part of it is the rolling up and down, all the margin calls, all the hedging and all the liquidation all help fuel the markets back up.

There has never been a time in the history of the markets that the central banks have lent so much long term support. The other part is with rates at zero around the world investors have decided that the US stock markets are a safe haven. How is it that in 13 sessions, the S&P futures have sold off 139 handles, or 6.5%, dropping through the 2100 handle all the way back down through the 2000’s and into the 1900’s and then rallied 156.25 handles, or 7.9%, all the way back to new all time continuous highs?

Brexit vs. S&P

Below is a perfect example of how quantitative easing kills the bears

In the end the markets are what I call ‘event driven’ Meaning the big moves are based off of news. Once the news event gets exploited by the algorithmic and HFT trading systems, and moves beyond what would be considered a normal move based off of the news, the very same trading programs that ‘exploit’ the S&P take the markets back the other way once the selling gets to a max extreme.

Look, I do not pretend to know the ‘exacts,’ nor do I fully understand how the economic tools that are being used can deflect all the negatives and rip higher like it’s doing now. With the US over $20 trillion in debt and, the EU pushing $12 trillion in debt, we all know this can not be sustained forever. That said all the talking heads, including George Soros, Bill ‘The Bond King’ Gross, and Carl Icahn, need to take some advice from MrTopStep, ‘It doesn’t matter how big you are, you can’t fight the FED.’

At the end of the day yesterday, the futures ended up selling back down to 2128.75 on the lowest volume in several sessions with a market-on-close imbalance that was virtually flat. Overnight, global markets again rallied and the S&P 500 futures caught a bid once Europe came online trading to new continuous all time highs. Crude oil (CLQ6:NYM) has rallied back above the $46.00 handle to $46.17 this morning, up $1.41. Meanwhile the U.S. Treasury Bond futures have continued their dump from yesterday trading back below the 174’00 handle after trading above 177’00 during Monday’s globex session.

In Asia, 11 out of 11 markets closed higher (Nikkei +2.46%), and In Europe 11 out of 12 markets are trading higher this morning (DAX +1.58%). Today’s economic calendar includes NFIB Small Business Optimism Index, James Bullard Speaks, Redbook, JOLTS, Wholesale Trade, 4-Week Bill Auction, 10-Yr Note Auction, Neel Kashkari Speaks, and Loretta J. Mester Speaks.

Our View: It’s 8:00 CT and the S&P futures (ESU16:CME) have traded all the way up to 2141.75. The rally has been a great example of not fighting city hall. If you followed the trend and bought weakness every time the ES sold off you caught a very large move. If you tried to sell it along the way and were quick maybe you made some money, but the real money trade has been buying the little pull back.

I have to admit it’s not as easy as it sounda. With the S&P up almost 8% in 10 trading days, it’s only natural to try and sell a few rallies, but it just has not worked. In the world of risk on / risk off its all risk on and it’s all going to the US of A.

Our view, the S&P is going to 2150 and beyond and at least part of ‘Turn- Around Tuesday’ has already started. Yesterday some lady on CNBC said the S&P was going to 2400.00 and she was not the first one to make positive predictions. In most cases when you see that on CNBC it usually means its pull back time. That said it’s the July expiration week and today’s stats show the S&P as being weak, up 14 / down 18 0f the last 32 occasions. We lean to selling the early rallies and buying weakness. 2150 on tap.

Download the July expiration stats here.

As always, please use protective buy and sell stops when trading futures and options.

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• In Asia 11 out of 11 markets closed higher: Shanghai Comp +1.82%, Hang Seng +1.65%, Nikkei +2.46%
• In Europe 11 out of 12 markets are trading higher: CAC +1.65%, DAX +1.58%, FTSE -0.07% at 6:30am ET
• Fair Value: S&P -6.39, NASDAQ -7.36, Dow -88.96
• Total Volume: 1.46m ESU and 3.5k SPU traded

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