S&P 500 Futures: ‘Water in the Bathtub’

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After Monday’s lower lean, “Turnaround Tuesday” opened the regular session at 2264.50, down two ticks, and traded weaker on the open, as the index futures had a hard time rallying. Then, due to what some chatter called a “fat fingered” trade in the SPX options, the S&P’s took about a 5 handle dive in 20 seconds. The ES traded down to the overnight low at 2259.50, bounced there, and maintained a strong bid throughout the morning. The futures eventually traded up to 2274.00 about an hour after the Euro close.

At that time, it looked like another S&P ramp higher, leaving shorts unable to step in front of this moving train. However, equities did look weaker into the close, pushing down to 2263.25. There was a failed bounce at 2269.25 leading to another trade of 2263.25 before settling the day at 2264.00, down one handle, as the MOC came in at $170 million for sale.

Crude oil futures (CLG17:NYM) were again weak after further doubts of whether an OPEC cut would maintain real commitments from member nations, and pushed down to $50.71, more than $5.00 off last weeks high of $55.24. Gold futures (GCG17:CMX) continued their rally toward the $1,200 level, as did U.S. Treasury futures. Meanwhile, the U.S. Dollar has slumped over the last few sessions, but maintains firm in the larger trend.

Yesterday, the big news was the small business optimism index (chart below), which has seen one of its sharpest rises in history. Since the U.S. election, this sentiment indicator is showing its highest reading since December 2004, giving indication that the equity market rally seems to be accompanied, and grounded, by a renewed optimism amongst business owners. At this point, there is little doubt that the Trump victory fueled this equity rally. This puts the S&P in a vulnerable place. If the S&P rally is gauged in the expectations for Trump, then he has a lot to live up to.

People ask me, what’s the next catalyst for movement? I am beginning to look to the inauguration next week, and the first 100 days of the new administration, as we begin to learn what the real Trump agenda will be. How practical and realistic is it? How well will congress will work with him, both Republicans and Democrats?

Overnight, global markets were again mixed but, modestly higher in Asia and Europe. The S&P futures opened globex at 2264.25 and traded to an early session high of 2265.50 before the Tokyo open. From there, the futures pushed lower, down to 2259.75, early in the Tokyo session, and then double bottomed there early after the European open. Since then, the ESH17 has moved higher, up to 2265.25, and at 7:28 am cst has last printed 2260.75, down 3 handles on the day, with volume at 118k.

Asia and Europe

In Asia, 7 out of 11 markets closed higher (Shanghai -0.79%), and in Europe 6 out of 11 markets are trading higher this morning (DAX +0.26%). Today’s economic calendar includes MBA Mortgage Applications, Atlanta Fed Business Inflation Expectations, EIA Petroleum Status Report, a 10-Yr Note Auction, and William Dudley Speaks.

Our View

Most of the indices are modestly higher this morning. While the (ESH17:CME) did make another new all time contract high, the futures have been stuck in what we call a ‘water in the bathtub’ type trade. This means that the algo’s push the ES one way, and then push it the other. Overall volume has not snapped back after the holiday, we think it has to do with the markets being up so much and a cloud of doubt about what happens after Trump takes over the White House.

This morning we have a busy economic schedule. Our view; the patterns seem pretty set in stone. I keep thinking we could see some more downside, but every time the ES has and early sell off, it usually rallies. We lean to selling the early to mid morning rally and then buying weakness. Hopefully the markets will pick up after the January 20th inauguration.

Market Vitals for Wednesday 01-11-2017

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Top Notch Trading Morning Bond Numbers

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

  • In Asia 7 out of 11 markets are trading higher: Shanghai Comp -0.79%, Hang Seng +0.84%, Nikkei +0.32%
  • In Europe 6 out of 11 markets are trading higher: CAC +0.07%, DAX +0.26%, FTSE +0.10% at 6:00am ET
  • Fair Value: S&P -5.40, NASDAQ -3.97, Dow -78.63
  • Total Volume: 1.3m ESH and 3.1k SPH traded
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Danny Riley (2071 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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