(Yesterdays regular session Macro/Market Profile chart)
There is a very well known trading rule at MrTopStep that says “it takes days and weeks to knock the S&P down and one one to bring it back.” Over the last four regular trading sessions the ESH16 has gone from making a low at 1802.50 creating a successful retest double bottom of the January lows there and travelled to 1927.25. Crude oil futures that ‘double bottomed’ at the $26 dollar level is up +25% in the last four trading sessions. Despite the sell off in 2016, the mutual funds turned into buyers on the last trading day of January and have had MOC buys in all but one session. The PitBull has said many times that the mutual funds buy when the ES is going up or down but that when the markets sell off like they have the funds are able to pick up ‘cheap inventory.’ Its been an explosive rally since last Thursday’s low, and based on the overall price action and how the futures closed, I’m not quite sure the rally is over yet.
Lets face it the markets were oversold, and with the Russian pushing and getting agreements for production freezes, the net result has been a quick 125 handle rally. The question I have is where has all the fear gone? Is China, the Yen carry trade or Deutsche Bank not a problem any more? Is crude oil basing? The stock market has rallied but the banks are not reacting. Is this just a big dead cat bounce or are the buyers back for real. I still think it’s too early to have a sustained rally without some hiccups.
Gold futures (GCH6:CMX) continue to pull away from the $1265 area high made last week having closed at 1208.80 after trading below 1200 earlier in the day. U.S. Treasury futures are also seeing weakness as the 30 year bond has withdrawn from its recent high as the U.S. dollar seems to be holding a bid since last Thursday’s low.
Yesterday, with the FOMC minutes on tap, Bank of America sent out a note suggesting that they expect for two rate hikes to come in the second half of this year, but earlier in the day stated that their models saw a 25% chance of an economic recession this year. Later in the day after the Fed minutes were released Rabobank released a note also believing that the Fed would raise rates twice this year.
In Asia 10 out of 11 markets closed higher (Nikkei +2,28%), and In Europe 9 out of 12 markets are trading higher this morning (DAX +1.71%). Today’s economic calendar includes Weekly Bill Settlement, Jobless Claims, Philadelphia Fed Business Outlook Survey, Bloomberg Consumer Comfort Index, Leading Indicators, EIA Natural Gas Report, EIA Petroleum Status Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 2-Yr Note Announcement, 5-Yr Note Announcement, 7-Yr Note Announcement, 30-Yr TIPS Auction, John Williams Speaks, Fed Balance Sheet and Money Supply.
Our View: Short weeks are long for a reason and it’s been especially long for the bears. Fighting this has been impossible. Based on how the ESH16 is acting and knowing there are buy stops that run up to 1946, ESH 1950 is on tap. I had the right idea about selling the early rally and buying weakness and I got caught selling into it after the early low was in. You could see the buying coming in on the half hours and it never let up. Our view is to sell the early rally and buy weakness but I have a feeling we could end up down on the day.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed higher: Shanghai Comp -0.16%, Hang Seng +2.32%, Nikkei +2.28%
- In Europe 9 of 12 markets are trading higher: CAC +0.96%, DAX +1.68%, FTSE -0.27% at 6:00am CT
- Fair Value: S&P -3.54, NASDAQ -1.69, Dow -36.81
- Total Volume: 1.85mil ESH and 8.9k SPH
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