Yesterday’s trade looked similar to Monday’s. Traders have been asking me what I think of this sell off… For now, the selling back down to the high volume area of the month does not ring severe alarm bells, and end of the month profit taking has now assumed a 1.5% pullback, which is still very modest.
On Tuesday the S&P 500 futures opened at 2268.75, down 7.5 handles, and failed to rally early on. The futures were pushed down to Monday’s low, it broke through that low by a few ticks and bottomed at 2262.25 before trading sideways to higher for the remainder of the session. A rally ensued going into the close, pushing the ESH back up to 2276.50, before settling at 2275.00, down just over a handle.
Despite the rallies being sold, it still feels like it did earlier in the month. The victory has to be claimed by the bulls, as the bears are unable to prove anything, and buyers still swarm in and pick this market up. The Chicago PMI was at least a modestly noticeable miss yesterday, yet the weakness in equities were limited as the Fed began their two day meeting.
This week seems to only intensify as the Fed concludes their meeting today. The host of economic reports continue, and we begin to look toward Friday’s NFP. Of course, any of these have the potential to be small in comparison to any Trump news release. His aggressive action, on what some consider to be unpopular policies, continue to grip the attention of financial markets here, and around the world.
Recently the Wall Street Journal reported that executives from Goldman Sachs, JP Morgan and Morgan Stanley have sold $100 million dollars worth of stock since the election, not to mention the $350 million of sold stock to cover the process of exercising options they had expected to go worthless before the election rally.
The question is, if Wall Street’s “insiders” are selling into this rally, how much longer until their banks begin to do the same? One thing on the “Street” well known is to get yourself into position first, then get your best clients in, then try to sell the idea to the mass public.
While You Were Sleeping
Overnight some Asian markets were still closed for the Lunar New Year, however, all open markets, with the exception of the Hang Seng, closed higher. Europe followed through with all markets currently trading higher. The S&P 500 futures opened globex at 2277.00 and traded down to an early low at 2274.75 after the Tokyo open. Since then, the futures rallied modestly up to a high of 2281.50 late in the Asian session, but failed to make a new high during the European rally. Right now, the ESH has last printed 2281.00, up 6.50 handles, on volume of 122k as of 7:27 am cst.
In Asia, 7 out of 8 open markets closed higher (Nikkei +0.56%), and in Europe 11 out of 11 markets are trading higher this morning (DAX +1.03%). Today’s economic calendar includes Bank Reserve Settlement, Motor Vehicle Sales, MBA Mortgage Applications, ADP Employment Report, Gallup U.S. Job Creation Index, a 3-Yr Note Announcement, a 10-Yr Note Announcement, a 30-Yr Bond Announcement, Treasury Refunding Announcement, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, EIA Petroleum Status Report, and the FOMC Meeting Announcement.
Today’s Calendar Preview from Barclays and BofA/ML
Barclays:
BofA Merrill:
Our View
Like I said, it’s one thing to get the ES to close down one or two days in a row, but three day declines are very rare. I also said the ES could sell off yesterday, but to beware of the late day rally. Clearly, the big investment firms sold Monday and early yesterday, and then put the money back to work late in the day on the last trading day of the month. The other clue was the biotechs and the Russell 2,000 were up all day.
Overnight, the ES traded all the way up to 2281.50, just 18.5 handles away from S&P future 2300.00. Yesterday, when the futures were down, I told the PitBull to watch out for a late day ‘pop,’ but I did not know the ES would rally so quickly and so hard. I am sure, like many declines and sharp rallies, that traders are shaking their heads, but this is how it works.
Is the decline over? Is everything OK again? I do not think so. Can the ES continue to go up? Sure it can, but I still believe that the higher the S&P goes, the ‘greater the risk’ becomes to the downside. Can the ES trade 2300.00 or higher? Yes, but it’s not going to keep going! Our view is to sell the early to midday rallies and buy weakness, keeping in mind that as long as President Trump continues to make America great, there will be some big bumps in the road.
‘The S&P 500 Futures: Complacency and Destroying The Status Quo’
Market Vitals for Wednesday 02-01-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 8 open markets closed higher: Shanghai Comp closed, Hang Seng -0.18%, Nikkei +0.56%
- In Europe 11 out of 11 markets are trading higher: CAC +1.18%, DAX +1.03%, FTSE +0.64% at 6:00am ET
- Fair Value: S&P -4.25, NASDAQ -3.61, Dow -68.53
- Total Volume: 1.6m ESH and 3.9k SPH traded
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