Yesterday, the risk off momentum of worldwide equity markets continued going into day one of the two day Fed Meeting, just over a week before the Brexit vote. With the S&P 500 futures above 2100 just a few sessions ago, the tendency we have noted for over a year continued. Buyers and volume dry up above 2100 then momentum and volume increase on its way back down. That is just what we have seen the last two days as volume has totalled over 5 million minis traded. The move down took out the NFP lows from earlier this month and continued to march lower in the regular session down below 2055.
Let’s face it, what made sense was some profit taking into the mid month rebalance, but the money that goes off the table when traders are selling the rumor likely returns when they buy the news. The index is showing some lower highs and lower lows, but at this point the losses since Friday could abruptly be pared away. Like we always say, ‘it takes days and weeks to sell this market but only one to bring it back.’ The selling has been controlled and orderly so far. There is nothing showing panic, at this point, and it will not be long until the Brexit uncertainty is priced in.
Today will end the meeting of the FOMC. While it is virtually impossible that the interest rates will be raised in June, many analyst are paying close attention to language used, which could suggest clues for the months ahead. Despite the bearish employment data in April & May, we are mindful that last years NFP’s were weak in August & September, but two months later the Fed raised rates. At this point the S&P is maintaining some stability and integrity. The bulls have controlled the tape since the February 11th low and until real technical damage is done, we have to look for a bottom. The reaction to the Fed Meeting today will likely set the tone, and as traders are becoming more bearish, there could be a push lower just after the FOMC that pushes in and overcrowds the short side before buy stops are run higher. In either event, I am trying to keep an open mind about this market. With uncertainty so near, conviction goes out the door, and pragmatism becomes the necessity.
Overnight equity markets in Asia & Europe began to bid higher. The PitBull has an old rule that after three days of noticeable selling the markets tend to at least get a relief rally. Day 1 of selling, which was Friday, typically is the smart money. Day 2 (Monday) is the somewhat smart money, and by Day 3 (Tuesday) it is typically the “dumb money” getting in at the bottom. After the last shorts pile in, the market will trade back higher to run some of those stops, and it looks like that is what we are seeing overnight.
In Asia, 8 out of 11 markets closed higher (Shanghai +1.58%), and In Europe 11 out of 12 markets are trading higher this morning (DAX +0.97%). Today’s economic calendar includes the MBA Mortgage Applications, PPI-FD, Empire State Mfg Survey, Industrial Production, EIA Petroleum Status Report, FOMC Meeting Announcement & Forecasts, Fed Chair Press Conference, and Treasury International Capital.
Our View: The ES rallied yesterday but closed modestly lower. I have been looking for a rally and today may be when it comes. Global markets are trading higher for the first time in days. If buyers can hold the 8:30 ct cash open then I am looking to buy. Jeff Hirsch of StockTraders Almanac noted that Fed Days tend to be bullish, and some shorts will be booking profits ahead of the 1:00 pm CST fed announcement, while others may get stopped out after. I am not going to be a stubborn bull, patience is what this game is all about. Our view, we lean to selling the rallies and buying weakness. According to the S&P cash study, today is the weakest day of the week, up 14 / down 18 of the last 32 occasions. Tomorrow’s stats show the ES up 20/ down 12 of the last 32 occasions and, Friday is very bullish being up 22 / down 10 of the last 32. That is how I think the week will close out.
Download all of the June expiration stats here
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 +1.58%, Hang Seng +0.39%, Nikkei +0.38%
- In Europe 11 out of 12 markets are trading higher: CAC +1.32%, DAX +0.97%, FTSE +0.79% at 6:30am ET
- Fair Value: S&P -9.00, NASDAQ -8.26, Dow -100.88
- Total Volume: 2.7m ESU 1.1m ESM and 23k SPU 24K SPM traded
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