Levels, levels and more levels is the name of this game. It does not matter if it’s the bonds, the S&P or the currencies, it’s all about the levels. After an up day on Monday, and a down day on Tuesday, the S&P futures (ESM16:CME) made a new low by two ticks after the 8:30 open at the 2035 level and then roared up to 2052. We put out in the forum that the ES could trade up to 2051-2053 and the early high was 2052.00. After the Fed minutes the ESM16 sold off, bounced and then went on to make new low.
The S&P fell Wednesday after the minutes of the Federal Reserve’s April meeting showed the bank was in if mode. Meaning if data supports a rate hike, then they could increase rates at the next meeting on June 14-15. The first signal of a June rate hike came Monday when Fed bank President John Williams said there could be 2 to 3 rate hikes by year end. This was followed up by yesterday’s minutes. The fed was concerned about the usual red flags. While the fed did indicate that the the odds of a June hike as “unduly” low, they also said it would depend on ‘the state of the economy both here and abroad.’ Before the minutes were released the Dow futures (YMM16:CBOT) were up over 100 points and the S&P futures (ESM16:CME) were up, sold off hard and basically closed unchanged.
Overnight, equity markets worldwide traded risk off in response to the Fed’s statements, and crude oil futures (CLN16:NYM) continued to trade weaker down more than $1.00, or 2%, to $47.75 on the new July front month future. The S&P 500 futures have traded lower to sideways in the globex session, making it’s 2044.75 high on the open, and trading as low as 2032.75 twice early in the Euro session, and is currently trading at 2037.00, down 4.00 handles. It’s holding up pretty well, given the weakness in Asia and Europe, on just over 150K volume at 6:00 am cst.
The price levels we have pointed out this week turned out to be pivotal yesterday and overnight, as the ESM16 has been holding its recent lows, and held the May 6 low yesterday by one tick at 2030.75. The floor that dip buyers have built there seems to be increasingly vulnerable but sellers have been unable to remove this floor. A break of 2030.00 opens the door for the 2026 April low print and likely down to 2000 and possibly lower and we are not ruling out a 1950 print this summer as the chart is clearly showing break down. To the upside, bulls have failed to maintain higher highs and need to push back above 2050 and re-create a floor there. The weekly close becomes very important at this point as existing home sales tomorrow is the next relevant calendar event. If bulls fail to gain some point of control today, then we will be looking for a very weak close tomorrow, with follow through into the end of month.
In Asia, 10 out of 11 markets closed lower (Shanghai -0.02%), and In Europe, 10 out of 11 open markets are trading lower this morning (DAX -1.19%). Today’s economic calendar includes Weekly Bill Settlement, Jobless Claims, Philadelphia Fed Business Outlook Survey, Chicago Fed National Activity Index, Bloomberg Consumer Comfort Index, Leading Indicators, EIA Natural Gas Report, William Dudley Speaks, 3-Month Bill Announcement, 52-Week Bill Announcement, 5-Yr Note Announcement, 7-Yr Note Announcement, 6-Month Bill Announcement, 2-Yr Note Announcement, 10-Yr TIPS Auction, Fed Balance Sheet, and Money Supply.
Our view: The ESM16 is still holding its downside range. Yesterday I put out the downside stop levels but the futures held the 2035 level and overnight held the 2033 level. Can or will the future’s break the 2029-2030 level? I would think so but if the past price action could speak it would be saying these are the levels to be buying at. My gut says there is going to be a stab at the sell stops but we want to see how the futures act after the 8:30 open. In most cases when the futures open lower pre 8:30 open they go up first and then head back down. If indeed they do start breaking down I want to see if they hold the 2025 level of breakdown to 2010. Today’s S&P cash study shows today as a statistically friendly day for the S&P, up 18 / down 14 of the last 32 occasions. That said our view is to buy the early weakness (if we the ES opens lower) and sell the rallies. If the ESM16 does indeed hold the current Globex low then we would be looking for a push back to the 2050 level. If not we could be looking at breaking the current range.
Download all of the May expiration stats here.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed lower: Shanghai Comp -0.02%, Hang Seng -0.67%, Nikkei +0.01%
- In Europe 10 out of 11 open markets are trading lower: CAC -0.90%, DAX -1.15%, FTSE -1.35% at 6:30am CT
- Fair Value: S&P -3.16, NASDAQ -2.40, Dow -31.59
- Total Volume: 2.0mil ESM and 4.0k SPM traded
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