S&P 500 Futures: U-Turn And A Big Fat Stop Run

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You know what? As bad as the markets may be, MrTopStep has a trading rule that says the ‘S&P 500 futures tend to go sideways to higher after a big down day,’ and that’s what happened yesterday. After making an overnight Globex low at 2344.25, the ESM17:CME short covered up to 2354.25 just before the 8:30 CT futures open. The ES made its low on the open at 2351.50 and then blasted up to an early high of 2367.50 around 9:40 CT. From there the futures stutter stepped down to 2359.75 and then ripped up to 2375.00 before pulling back down to 2366.00 on the close.

After Asia and Europe fell overnight, and the ESM sold off down to 2344.25, it looking like traders in the U.S. should be preparing for the worst, but after the futures opened, the selling dried up and the algos started chasing the upside buy stops. While the jury is still out, the short squeeze was another good example of how quickly things can change, and now quickly the programs react when the selling lets up.

At the end of the day the ES made back a small portion of Wednesday loss. The volume was over 2.4 million, on top of Wednesday’s 2.8 Million. That means a total of 5.2 million ES traded in two days, which is just about the equivalent of a full weeks volume in two days. As far as the overall tone, the ES acted well, but it was all short covering.

While You Were Sleeping

Overnight, equity markets in Asia were mostly back in the green, albeit very modestly so, followed by Europe which is showing a moderate amount of green across the board, as all markets are currently trading higher. In the U.S. the S&P 500 futures opened globex at 2364.00 and traded down to a 2361.00 low early in the Tokyo session, before rallying up to 2371.50 a few hours after the Euro open. As of 5:30 am cst the most recent print is 2368.75, up 5.25 handles, on volume of 117k.

In Asia, 9 out of 11 markets closed higher (Nikkei +0.15%), and in Europe 12 out of 12 markets are trading higher this morning (FTSE +0.44%). Today’s economic calendar includes the Fed’s James Bullard Speaking, Baker-Hughes Rig Count and the Fed’s John Williams Speaking.

Goldman Sachs:

Our View

The ES rallied overnight, but I am not sure we won’t see some type of pull back / sell off at some point today. I still think a retest of the 2344.25 low is a possibility. The main question here is if the news over the last few days is enough to keep the markets weak? I do not think so, but again, I can’t rule some type of retest. Our view is to sell the early to mid day rallies and buy weakness.

PitBull: CLN osc 23/-9 turns up on a close above 50.27, ESM osc -21/9 turns up on a close above 2399.81, VIX osc 36/-6 turns down on a close below 1041.

Market Vitals for Friday 05-d19-2017

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As always, please use protective buy and sell stops when trading futures and options.

  • In Asia 9 out of 11 markets closed higher: Shanghai Comp +0.03%, Hang Seng +0.19%, Nikkei +0.15%
  • In Europe 12 out of 12 markets are trading higher: CAC +0.54%, DAX +0.29%, FTSE +0.44%
  • Fair Value: S&P -1.42, NASDAQ +2.56, Dow -19.18
  • Total Volume: 2.4m ESM and 3.8 k SPM traded
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Danny Riley (2085 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.

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