S&P 500 Futures: Welcome to 2017

Charts, Commentary, News, Our View, Technical Analysis, The Opening Print, Trades

Last week, the final four sessions of 2016 went out on a sour note for disappointed bulls, who were anticipating 2300 and new all time high closing prints. From the moment the S&P 500 futures traded up to the 2269.50 on Tuesday, things only got weaker. The benchmark index futures failed to rally and hold, meanwhile, sell programs pushed the S&P’s to a 2228.00 low on Friday afternoon before settling at 2233.50, about 40 handles, or 1.75%, from all time highs.

As weak as equities were, the movement lower wasn’t much of a surprise, especially after a historical rally that culminated another ‘buy the dip’ type of year. The S&P 500 was down 10% to start the year, then rallied back, then was lower by 7% after Brexit before making a summer comeback. On election night, the futures were down 5% before rallying 255 handles from the limit down low to the all time high print, and ultimately settled the year up 198 handles, or about 8.5%.

Going into the end of year it was not unexpected to see a temporary reversal of many of the strong trends as equities dipped. The U.S. Dollar, which had rallied strong late in the year, saw weakness in the final week. Gold futures, as well as U.S. Treasury futures, which had seen a significant decline over the last few months, saw a bid over the last couple of weeks.

No Place Like Home

Going into 2016 there was a “feel” about the market after the Autumn correction, the record monthly gain in October, and then the first interest rate hike since 2006. All of that gave the market a risk off feel to it, but now a year later, the “feel” is very different. It seems, for now at least, that the markets are comfortable factoring in multiple rate hikes in 2017 (if that happens), and with risk off instruments running sell stops, there isn’t a much better place to invest than the stock market, particularly the U.S. stock market.

Gold futures ended the year seeing a $200 decline, while T-Bond futures saw a sharp sell off pushing prices to 18 month lows. In China, the Shanghai closed 2016 down -12%, Tokyo’s Nikkei and Germany’s DAX both closed the year with little difference. Meanwhile, U.S. equities rose along with Great Britain’s FTSE, which was up 14%. In a world where risk on assets are appreciating, the U.S. indexes appear to be leading the way.

DOW 20K

Last July, Citibank put out a note anticipating a bullish outside year for the S&P 500, which did complete. This was only the third time since 1935. The prior two occurrences were in 1935 and 1982, which were followed by 28% and 17% higher returns. Citi likens 2016 closer to the 1982 year, which followed a “tumultuous period from 1966-1982 in the economy/housing/equity markets/Oil and geopolitics and was the start of a resumption of the long term uptrend.” Citi continued by showing a chart with a multi year process for the S&P 500 at the 5,000 level!

Late in the year the Dow Jones Industrial Average began to tug near 20K, but couldn’t overcome that number. While there may be some short term resistance, it looks like, for the near future, that buying the dip is still the best game in town. The question is, what can throw this off? At this point the market isn’t concerned with the Fed. Unemployment remains stable, corporate earnings and GDP have been weak, relatively speaking, but nowhere near panic levels.

Well, this week the 115th congress will be sworn in, and later this month Donald Trump will be sworn in as the 45th President of the United States. Soon we will have more of an idea of the details of his stimulus plan, and we know the financial markets will be paying attention.

Out of 15 strategist from major banks that were polled last month, all of them have a higher target for 2017. However, 5 of them are only targeting 2,300 for the S&P 500, while only two are targeting over 2,400. Almost all of them expressed some concern over the market reaction to policy initiatives from the new administration.

Last Call For 2016

Date Net Change Settlement Volume
Monday Dec 19 +5.00 2260.75 921k
Tuesday Dec 20 +6.25 2267.00 826k
Wednesday Dec 21 -8.75 2258.25 650k
Thursday Dec 22 -0.25 2258.00 832k
Friday Dec 23 +0.75 2258.75 391k
Monday Dec 26 CLOSED
Tuesday Dec 27  +1.00  2260.75  498k
Wednesday Dec 28  -16.00  2244.75   1.00m
Thursday Dec 29  +1.50  2246.25  913k
Friday Dec 30  -12.75  2233.50  1.2m

While You Were Sleeping

Overnight, in Asia the Nikkei was closed, but the rest of the equity markets were mostly higher. The S&P 500 futures gapped higher to open at 2240.75, up 7.25 handles, and made an early low of 2240.00 before rallying through much of the session. The futures printed a high of 2255.25 shortly after 6:00 am cst, and last traded 2254.25, up 20.75 handles, on volume of 132k as of 6:25 am cst.

Asia and Europe

In Asia, 7 out of 9 open markets closed higher (Shanghai +1.04%), and in Europe 11 out of 11 markets are trading higher this morning (FTSE +0.44%). This week’s economic calendar features the FOMC minutes and NFP, and includes 26 other reports, 2 Fed speakers, and 15 U.S. Treasury events. Today’s economic calendar includes a 2-Yr Note Settlement, 5-Yr Note Settlement, 7-Yr Note Settlement, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, 4-Week Bill Auction, 3-Month Bill Auction, 6-Month Bill Auction, 52-Week Bill Auction and Gallup US ECI.

It Takes Days and Weeks To Push the S&P Lower & One To Bring It Back

Our View: The S&P 500 rally overnight is noticeable, but the volume is not. Stock markets around the world wanted risk off, and the dollar and crude continued their rallies. Meanwhile, bonds and gold were weak, again. If there is one thing we know, it is that fighting these higher moves in the S&P 500 doesn’t work as well as buying the dip. This week’s eco calendar is busy and we should know soon how serious this rally is.

Our call is to watch the 2250 level, which has been a recent pivot point in the S&P. Bulls should be able to build a floor there for higher prices. We are looking to buy any early weakness, knowing that funds often put money to work early in the week and month.

Top Notch Trading Morning Index and Bond Reports

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

  • In Asia 7 out of 9 open markets closed higher: Shanghai Comp +1.04%, Hang Seng +0.68%, Nikkei closed
  • In Europe 11 out of 11 markets are trading higher: CAC +0.43%, DAX +0.01%, FTSE +0.44% at 6:00am ET
  • Fair Value: S&P -4.81, NASDAQ -1.40, Dow -71.48
  • Total Volume: 1.28m ESH and 4.4k SPH traded
Follow MrTopStep in our Social Space:

Danny Riley (1353 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.


Leave a Reply