The dust from the Brexit is starting to settle and here in the U.S the S&P 500 is getting ready to run to new highs. We know there have been multiple failures above 2100.00 in the ES, but with the shorts still stuck and the July options expiration one week away, we are starting to get the feeling new highs could be on tap.
After all, last week proved the resiliency of the S&P 500 when the futures went limit down on Thursday night following the Brexit returns, and when the equity index appeared to be at its weakest, they ran the buy stops back above 2100. True, the 2100 has failed now three times this week. True, the 2100 level has been failing for over a year now, I will give you this, however, bears have been unable to inflict any long term damage to this index. Even after the Fed raised interest rates last year and has been in continuous rate hike speak, even during the unstable electoral season and political unrest around Europe, the S&P 500 is still 2% from all time highs.
Yesterday, the futures opened the cash session slightly higher, up a handle at 2094.25, and immediately buy programs ran it up to 2102.00 in the first half hour of trading. From there a familiar routine took place. Buyers dried up above 2100 and the S&P went offered, then when Crude dumped around the inventories number the ESU6 made new lows down to the 2081.75 print, 20 handles from the morning high. Buy programs pushed the index back up to close at 2092.25, up 10+ handles from the lows, closing just below the prior close on a market-on-close buy imbalance of about $750 million.
Overnight, the trend of weaker Asian equity markets, followed by a strong European session, the ESU16 back and has now pushed up to 2098.75, up 5.75 handles on the session, and is just 3.75 points from yesterday’s close. In about an hour from now, the June non-farm payroll number will be released and we expect for it to come in line. At this point, it will take more than a healthy NFP number for the Fed to return to hawkish leanings, but the benchmark equity index is at an interesting pivot.
There is typically ample momentum from the NFP price action to suggest that the S&P futures could make it’s highest close of the year. At the same another equity dump at 2100 doesn’t look good. Either way, MrTopStep has some rules; first the initial reaction to the NFP is often the one that gets faded, secondly “counter trend Friday” comes into play especially if volume gets stacked more than 400K before the 8:30 CST cash open, then we could see a sharp reversal and prices to run stops the other way.
In Asia, 9 out of 11 markets closed lower (Nikkei -1.11%), and In Europe 10 out of 12 markets are trading higher this morning (DAX +1.20%). Today’s economic calendar includes the Employment Situation, Baker-Hughes Rig Count, Consumer Credit, and Treasury STRIPS.
Jobs Friday
Our View: The way I see this, it really doesn’t matter if the jobs number comes in good or bad, the S&P 500 futures (ESU16) are going higher. It would be one thing to see an actual sell off that keeps going and changes the trend but we don’t get that. What the S&P does is jerk lower and then catch everyone short. Within that big or small sell offs find themselves caught in a never ending quantitive easing cycle / zero borrowing cost stock trade. That my friends is the whole ball of wax. If you are a bear you better have ‘bids in’ once your short or you could wake up to four day 6% rallies like last week.
The non-farm payroll estimates range from 165,000 to 185,000. I think it’s possible the number comes in on the light end but I also don’t think it matters. Even if the number comes in way higher, most traders will sell the news, so it really doesn’t matter the Fed can’t raise interest rates anytime soon.
The S&P cash study shows today as being up 23 down 9 of the last 32 occasions and next Monday’s stats are also positive, up 19 / down 13 of the last 32. I think it’s important to pay close attention to the stats going into next week options expiration. The S&P is holding just below and there is a high level of buy stops that basically run from 2110 to 2160. This does not mean it’s one big line of buy stops, but there is a very high level, and with the summer in full gear and last week’s bear wipe out its my guess traders are looking some time off from trading.
Our view; will the S&P start going up today? My gut says there is a good possibility the futures rally, but like always, you can’t rule out some kind of knock down. Today is also ‘Counter Trend Friday.’ If the futures were to move sharply in one direction after the jobs number, with volume over 400,000 ES traded pre:830 open, we would fade the move. If the ES opened down sharply we would look to buy the open of the first drop after the lower open. This is just for a trade but if the futures start moving up it maybe hard to regain the globex low. Buy weakness and use stops.
Download all of 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 9 out of 11 markets closed lower: Shanghai Comp -0.95%, Hang Seng -0.69%, Nikkei -1.11%
- In Europe 10 out of 12 markets are trading higher: CAC +0.86%, DAX +1.20%, FTSE +0.13% at 6:30am ET
- Fair Value: S&P -7.24, NASDAQ -8.02, Dow -92.18
- Total Volume: 1.6m ESU and 4.3k SPU traded
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