On Monday, what started out as a textbook thin-to-win trade, quickly turned into a tech stock puke session. The S&P 500 futures (ESU17:CME) opened Sunday nights globex session at 2422.00, and drifted higher all night. On the 8:30 cash open, the ES traded at 2431.75, and by 9:15am CT, the high of the day was in at 2436.50. The ESU held on as long as it could, but the weakness in the Nasdaq 100 futures (NQU17:CME), and the lack of volume due to the 4th of July holiday, was just too much for the benchmark index to handle.
The NQ opened the day session at 5683.50, and was never able to find any positive momentum. At 10:08am it had found an early low at 5607.00, but there was not enough strength for any significant pullback. After a move back to 5629.50 the buying had dried up, and a selloff down to 5581.25 ensued.
At the end of the day, even though stocks closed near their lows, the Dow and S&P opened up the second half of the year in positive territory. The Dow transportation average closed the session at a record high, and if you ask The PitBull, that’s a good sign for stocks.
Battle of the Bots
Some people might disagree with me, but I’m going to say that 90% of Monday’s volume was all algo and HFT programs. All the human traders here in the U.S. were busy prepping their grills for the big B-B-Q. The MrTopStep forum was nearly completely empty, and the few guys that were in there were just spectators. It was a day of machines cannibalizing each other.
FOMC
Today, at 1:00pm CT, the Federal Open Market Committee will release the minutes from their June 13-14 meeting. Traders will be zooming in on these documents looking for clues to decipher the feds schedule for future interest rate hikes. A Hawkish tone from the Fed would typically point to a rate hike sooner rather than later. This type of rhetoric would usually send stocks lower and bond yields higher, but with the release the non-farm payroll report on Friday overshadowing the Fed minutes release, it could be a non-event either way.
While You Were Sleeping
Overnight, equity markets in Asia traded mostly higher, led by the Shanghai Composite, which closed up +0.76%. Meanwhile, in Europe, equity markets are trading mixed this morning, with a slight bias to the up side.
In the U.S., since the extended globex session opened Monday night, the ES has been trading in a 10 handle range. The low at 2421.25, and the high at 2431.25, were both printed early Tuesday morning, and the futures have just drifted sideways since then. As of 6:30am CT, the last print in the ES is 2426.50, up 1.50 handles, with 260k contracts traded.
In Asia, 8 out of 11 markets closed lower (Shanghai +0.09%), and in Europe 12 out of 12 markets are trading higher this morning (FTSE +0.26%). Today’s economic calendar includes the Bank Reserve Settlement, MBA Mortgage Applications, Gallup U.S. Job Creation Index, Redbook, Factory Orders, Gallup US ECI, and the FOMC Minutes.
Our View
The last few Fed statements have been duds, and with today’s post holiday session likely to painfully slow, we think the day will have a modestly higher tone in line with Asian and European markets. The Nasdaq futures (NQU17:CME) are showing the most weakness overnight, consistent with the recent trend, and our view is that as long as tech remains weak, it will keep a lid on the large caps.
With this market being range bound over the last few weeks, and no strong momentum, we continue to look to fade the edges. When rallies look overdone, sell what is weakest (NQ), and when selling appears to be overdone, then be a buyer of strength (ES or YM).
For today, ahead of the FOMC minutes, as long as volume is low, we see resistance at the 2430 – 2435 area, and support at the 2422 – 2217 area.
Market Vitals for Wednesday 07-05-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed higher: Shanghai Comp +0.76%, Hang Seng +0.52%, Nikkei +0.25%
- In Europe 7 out of 12 markets are trading higher: CAC +0.10%, DAX +0.07%, FTSE +0.01%
- Fair Value: S&P -2.60, NASDAQ +4.41, Dow -55.62
- Total Volume: 766k ESU, and 660 SPU traded
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