Yesterday, after a 12.5 handle range in globex, the S&P 500 futures sat still during the regular session, trading fewer than 1 million mini’s during the RTH and having the tightest cash session price range since the day before Thanksgiving last year. What can we say, the index looked weak overnight, looked weak during the day and closed weak near the lows of the day on a $620 million market-on-close imbalance to the sell side. The series of lower highs continued as the day traded below Friday’s high and resistance continued to show near the 14 day moving average.
As the market approaches the unofficial start to the summer with the upcoming Memorial Day weekend, it appears that traders are already moving to the sidelines, as they did last year the week prior to the Memorial Day holiday. On top of it all, later this week Yellen is giving a speech and many traders and investors are concerned that the language she uses may have an impact on a equity market than now is anticipating a summer hike with odds over 50% for a rate hike according to the July Fed Fund Rate futures. What also concerns traders is that this year the benchmark S&P 500 index is making a lower high from last year at the 2100 resistance level we so heavily noted. According to Bloomberg the trend of a bull market failing to make a 52 week resulted 70% of the time in a bear market. Given the sluggishness of the markets, the fear of another correction, the exhausted buying at these current price levels and monetary policy as well as political uncertainty, it doesn’t appear that there is much to prompt investors to begin to buy.
Sure, volatility may show itself at some point in the summer as it usually does for at least a brief moment. With the impending potential Fed hikes, as well as the Brexit vote now a month away, two potential risk events are on the table, not to mention that the market corrected just prior to and after the December rate hike. We are not and have not ever told anyone to buy or sell, but at MrTopStep we call it like we see it, and it seems that now is not a time to be buying, and it’s not a great time to be trading in general. We are starting to look at some option positions longer term for later in the year weighing probabilities and possibilities heading into the political season. Much of this is anyone’s guess, and until the market shows us something new, we have to lean on what we have seen, and that is heavy resistance as the futures approach the 2100 level, but at the same time dip buyers who will be in line to buy all the way down to the Feb 11th lows and probably down to 1750 or lower.
Overnight, equity markets in Asian traded weak and the ESM16 pushed down to 2041.25 but remained above Friday’s 2040 globex level we have mentioned. The Euro markets opened higher and traded risk off for much of the session as the S&P futures rallied 12.75 handles to make a globex high of 2053.00, up 7.75 handles, and is currently trading just three ticks off those highs on volume of 140K at 6:20 am cst.
Heading into today’s cash open the market looks similar in range size to yesterday, but with lower volume, and it looks like more or less a repeat of Monday’s price action is in the card. However, with new home sales at 9:00 am cst headlining a very light calendar otherwise, there exists at least a possibility of some movement at that time. We are watching the 2040.00-2041.75 area for support today and expect that area to hold. A break of this area opens the door to 2022.00, however, if it’s another light day, there just doesn’t seem to be enough momentum to get it there. To the upside, the 2055.50-2056.00 area must be dealt with early in today’s session, and a bounce above opens the door for a retest of last week’s 2069.50 high.
In Asia, 9 out of 11 markets closed lower (Shanghai -0.77%), and In Europe, 10 out of 12 markets are trading higher this morning (DAX +0.99%). Today’s economic calendar includes Redbook, New Home Sales, Richmond Fed Manufacturing Index, a 4-Week Bill Auction, a 52-Week Bill Auction, and a 2-Yr Note Auction.
Our view: It’s 7:30 and the ESM is continuing to grind higher up to 2058.00, up 12.75 handles, and volume is still under 200K. Today’s full session daily bar has already engulfed yesterdays. Can the S&P again trade inside it’s globex range? It does no one any favors when the regular session can’t expand the overnight. With this ramp up this morning combined with a low volume week thin to win seems to be playing out and it looks like the 2069.50 high from last week is in sight now. Our call is to buy the early weakness and sell the late day strength.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed higher: Shanghai Comp -0.77%, Hang Seng +0.11%, Nikkei -0.94%
- In Europe 10 out of 12 markets are trading higher: CAC +1.40%, DAX +0.99%, FTSE +0.79% at 6:30am CT
- Fair Value: S&P -2.87, NASDAQ -2.49, Dow -27.53
- Total Volume: 1.18mil ESM and 3.0k SPM traded
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