Despite a big rally in Asia, there seemed to be a dark cloud hanging over the U.S. index markets yesterday. After a rally up to 2550.50 on Globex, the ES opened at the 2549.50 level on the 8:30 bell, and then sold off down to 2544.00. From there, the futures rallied a few handles before making a new low at 2543.50 at 9:52 am.
With North Korea doing their first nuclear test the day before founder’s day, Columbus day in the U.S., the overall trade was somewhat ‘muted’. The ES rallied back to the vwap at 2547.00, and that’s when the PitBull said his 5 minute chart was showing a high, and he was right on. As the day wore on, so did the ES, and by 2:15 the futures made five separate new lows down to 2539.25 as the VIX shot up to 10.52. Late in the day, the ES rallied back up to 2542.25, sold back off, and made a higher low by 1 tick before trading back up to the 2544.00 area going into the 3:15 futures close.
Two things stuck out about the sell off. Before the ES started to sell off, the VIX was moving up, and when the futures were on the lows, the VIX made a high of 10.50. The other part was the MiM. It started showing $367 million for sale at 2:09, then $423 million for sale at 3:20. When you take the PitBulls call about his 5 minute charts, the VIX moving up, and the MiM, which ended up with the NYSE imbalance showing over $1 billion for sale, it was not hard to figure out why the ES acted weak. But, and there is always a but, the ES ended up trading back up to 2544.00 on the futures close down only 1 handle on the day.
Like I said in the MrTopStep chat, ‘80% of the time you are supposed to sell the gap ups’ and that ended up being the whole ball of wax. When it comes to trading, the ES held it together. There was not a big drop, but a small, low volume, pull back.
In the end it was another slow day on a list of many recently. The S&P 500 futures (ESZ17:CME) settled at 2543.75, down -1.25 handles, or -0.05%; the Dow Jones futures (YMZ17:CBT) settled at 22711, up +17 points, or -0.07%; the Nasdaq 100 futures (NQZ17:CME) settled at 6064.25, up +0.25 points, or +0.01%; and the Russell 2000 (RTYZ17:CME) settled at 1507.60, down -4.00 points or -0.26% on the day.
While You Were Sleeping
Overnight, equity markets in Asia traded mixed, with a slight bias to the up side, and were fueled by the NIKKEI, which closed up +0.64%. Meanwhile, in Europe, stocks are also trading mixed this morning, but with a slight bias to the down side. The FTSE is currently trying to hold the rest of the markets up, and is trading up +0.27%.
In the U.S., the S&P 500 futures opened last night’s globex session at 2543.25, and printed the overnight low of 2543.00 in the first few minutes of trading. The ES was range bound between 2543.00 and 2547.00, until European stocks came online, and the ES started to build a little strength. As of 7:10am CT, the last print in the ES is 2547.75 up +4.25 handles, with 98k contracts traded.
In Asia, 7 out of 11 markets closed higher (Shanghai +0.27%), and in Europe 8 out of 12 markets are trading lower this morning (FTSE +0.26%).
Today’s economic includes NFIB Small Business Optimism Index (6:00 a.m. ET), Redbook (8:55 a.m. ET); Fedspeak — Neel Kashkari Speaks (10:00 a.m. ET); Rob Kaplan Speaks (8:00 p.m. ET); Earnings — Neiman Marcus (9:30-10:00 a.m. ET).
Our View
With the ES at a big round 2550 level, and going into the middle of the month, we expect to see some range bound consolidation as price will “back and fill” over the next few days. This has been the pattern over the last two years every time the S&P expanded the range and hit a big round number.
While we think gains could be limited in the short term, we are not stepping in and shorting this market with size. If you must short, do so small, take a quick profit and leave a trailing stop. The 10 handle rule worked from Friday’s high to yesterday’s low, and that may have been the gift for the early week. A 20 handle pullback would be 2530.75, and buyers will start piling in below 2535. The only thing that can change the bulls mind on these small pullbacks is more news out of North Korea.
Market Vitals for Tuesday 10-10-2017
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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 higher: Shanghai Comp +0.27%, Hang Seng +0.58%, Nikkei +0.64%
- In Europe 8 out of 12 markets are trading lower: CAC -0.10%, DAX -0.14%, FTSE +0.26%
- Fair Value: S&P -2.19, NASDAQ +2.74, Dow -53.41
- Total Volume: 734k ESZ & 377 SPZ traded in the pit
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