S&P 500 Futures: TurnAround Tuesday Meets T+3
Yesterday was a great example of one of MrTopStep’s new trading rules, “The Three Parts To The Trading Day,” that begins with the globex session. The overnight range had been established after the U.S. Presidential debate. As the S&P ran late into the Globex session the ESZ began showing considerable weakness into the cash open. It looked like everyone was thinking the same thing, to short the open.
When the cash market opened, early sell programs took the S&P’s down to the globex low. Sellers broke that low by two ticks, trading down to 2132.75. Once everyone was short after the weak longs had been shaken out, it was time to run the buy stops, and from there the ES pushed higher. There was a quick 16 handle rally up to 2148.75, followed by a 6 handle retracement to suck some shorts back in. The ES then proceeded to run more buy stops up to the overnight high at 2154. From there we were stuck in a 3 handle range during the final part of the trading day.
Financial Markets React to the Debate
It was clear that the T+3 trade was clearly aimed toward the ‘risk off’ attitude as the S&P’s rallied and gold sold off during much of the day. Monday’s debate, which was seen as a Hillary Clinton victory merely by her showing up appearing to be relatively healthy and performing average, made the markets feel better. She is the “known” candidate on Wall Street, even if she is not Wall Street’s “ideal” candidate.
Looking at the chart below, we see that as Clinton rises in the polls, there seems to be a correlation with better performing equities. Trump strength, on the other hand, makes the markets feel uneasy.
OPEC & Deutsche Bank Remain in the Headlines
Another major story during the day was the OPEC meeting. No new policy changes were produced as crude oil futures (CLX6:NYM) traded down to $44.16 from the prior $45.89 close. At the low, crude was down $1.73, or nearly 4%, before settling at the $44.70 area. It closed off the lows, but was still noticeably lower on the day.
The other big story was the chatter that the Department of Justice was considering reducing the penalty on Deutsche Bank. This is similar to what was done for Bank of America. Deutsche stock jumped after making an early low of $11.64, rallying up to $11.93, up more than 2.5% from the low. All this while large put orders on DB were being entered throughout the day.
This news was great for Deutsche after Merkel’s disappointing remarks refusing a bailout late last week. No one wants to see an institution like DB fall. It brings back many memories from 2008 when Bear Stearns fell in the spring before being bailout out by the Fed via JP Morgan. As we learned then, nothing is isolated any longer, and risk is more systemic than ever. It was months after Bear Stearns fell that Lehman, Countrywide Mortgage Co, AIG, Washington Mutual and others began to break the dam.
Look, we are not calling for another global crises, but in these modern markets where every bank’s risk is tied to another, it wouldn’t be a longshot to suspect their failure could cause another institution’s pain. We are not saying that there will be a run on the banks, or a recession, but the lesson learned from 2008 is to never assume anything is limited to one troubled party.
What Happened in Globex
Overnight equity markets in Asia traded mixed. Europe opened with a strong bid as Deutsche Bank shares have rallied. The ESZ was sideways to lower early in globex. An early low of 2147 was made before rallying into the European open, making a high of 2158, an 11 handle bounce. The high was made just after 3:00 am cst before trading back down to 2148. Currently the ES is trading at 2152.75, unchanged, on volume of 160K at 6:18 am cst.
Today offers the conclusion of the OPEC meeting, along with six Fed speakers, and some economic releases. It looks like the S&P wants to head higher, but bulls still are not out of the woods yet, and have not taken charge. The end of quarter stats show bearishness the rest of the week, but it looks like the bets have been made to flow money into equities right now. We may get one more down day this week, but we probably have at least one more higher day as well. Bulls need a close today above 2160 while bears need to close below 2150.
In Asia, 6 out of 11 markets closed higher (Nikkei -1.31%), and in Europe 10 out of 11 markets are trading higher this morning (DAX -1.08%). Today’s economic calendar includes Bank Reserve Settlement, MBA Mortgage Applications, Durable Goods Orders, Neel Kashkari Speaks, Janet Yellen Speaks, James Bullard Speaks, EIA Petroleum Status Report, a 2-Yr FRN Note Auction, a 7-Yr Note Auction, Charles Evans Speaks, Loretta Mester Speaks,and Esther George Speaks.
Our View
The S&P has mounted an impressive run higher, despite the drop down to 2100 earlier in the month, and the negative seasonality. However, the index futures are starting to hit some key resistance areas where bears must take take charge, and where buyers have had a difficult time for much of the summer. While it looks like the ES could continue a rally late in the year, we cannot rule out some sort of attempted retest of the lows. During election years October is the worst performing month.
As the S&P is hitting 2160 and 2170 resistance areas our call is to begin to sell rallies as long as the risk to reward is sensible. This means taking a quick stop and finding a re-entry higher. One thing we have learned about this market is that when buy programs are taking over it’s hard to step in front of the trend. Our view is to sell the early strength. If you’re looking to buy, wait for the late weakness.
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 -0.34%, Hang Seng +0.20%, Nikkei -1.31%
- In Europe 10 out of 11 markets are trading higher: CAC +1.10%, DAX +1.08%, FTSE +0.77% at 6:00am ET
- Fair Value: S&P -7.18, NASDAQ -6.92, Dow -94.60
- Total Volume: 1.65mil ESZ and 5.2k SPZ traded
[s_static_display]
No responses yet