The interest rate hike drums are pounding again. Investors should get a better idea of what’s on the mind of Janet Yellen, and fellow fed bank presidents, when the Fed meets for its annual symposium in Jackson Hole. Both should show the feds eagerness to raise interest rates, but that it probably won’t until next year.
S&P Hits 11 Record Highs Since Early July
After seven weeks of narrow, sideways to up, price action the ESU16 finally gave way to the downside. On Tuesday, when the ES rallied, it knocked out buys stops up to the highs. Yesterday the S&P started to hit sell stops near the recent low of the range. Like the PitBull says, the movement in the S&P is like moving water around in the bathtub; push it up into the stops, push it down into the stops.
Is the S&P getting ‘toppy’? Well, after 14 days in a row trading above 2180, the S&P was only able to trade above 2190 twice. Both occurrences failed as the futures got hit by some late day sell programs when crude oil futures (CLV16:NYM) traded below 46.50 a barrel.
At the end of the day the ES closed down -0.50%, the (YMU16:CBT) closed down -0.36%, and the Nasdaq futures (NQU16:CME) closed down -0.80%. Aside from the weakness in the energy markets, the Nasdaq Biotechnology Index (NBI:NASDAQ), which has been weak, closed down 3.4%. Gold fell to a four week low over concerns of possible rate increases. December gold on the COMEX settled down -1.2% at $1,329.70 an ounce. Gold is up 25% year to date.
Rising Rates
While the Chicago Board of Trades fed funds contract shows an increased possibility of a rate hike in the September meeting, the U.S. Congressional Budget Office is not so sure. In the latest update of its budget and economic outlook released on Tuesday, the CBO said it expects the fed to hold its target for the federal funds rate at 0.25 to 0.5 percent until the 4th quarter before raising it. Additionally the CBO sees a slower increase in interest rates in 2017 and 2018.
So when is the Fed going to raise interest rates? Personally, I think it’s coming. I don’t think there is a rate hike in September or December. More than likely it will come in the first quarter of 2107. The rate hikes are coming and don’t fall for the idea that the markets will react kindly to it.
Overnight Asian markets were mixed to lower as the S&P remained in a 3.5 handle range until the European open. All markets went offered helping to send the ESU6 down to a 2169 low, just a few minutes ago, one tick from yesterday’s low on volume of 144K as of 6:20 am cst. What bulls need right now is a double bottom and futures to spring higher from this low.
I’m not sure how much energy the index has in it. Buyers must be exhausted and sellers are salivating after a modestly weak close. Given the Jackson Hole symposium, it feels markets want to be risk off, however, at this point without follow through, yesterday was just noise. Bears need to attack last week’s 2165 low early, then go after the August 2145.50 low tomorrow. This is also asking a lot from the sell side.
In Asia, 6 out of 11 markets closed lower (Shanghai -0.57%), and in Europe 12 out of 12 markets are trading lower this morning (DAX -0.99%). Today’s economic calendar includes Weekly Bill Settlement, Monetary policy symposium, Durable Goods Orders, Jobless Claims, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 7-Yr Note Auction, Fed Balance Sheet, and Money Supply.
Our View
A little sell off and the bears come flying out of the woods. There are 5 trading day left in August. According to the Stock Trader’s Almanac, the weeks after the August expiration have the Dow down 6 out of the last 10 occasions. The Tuesday before the last trading day of the month has the S&P down 15 of the last 19 years.
Our view is that there could be another half day down, or at least a retest of yesterday’s lows. It’s 9:15 PM and the ES is trading 2174.00. Sell the early rallies and buy weakness.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 6 out of 11 markets closed lower: Shanghai Comp -0.57%, Hang Seng +0.03%, Nikkei -0.25%
- In Europe 12 out of 12 markets are trading lower: CAC -0.91%, DAX -0.099%, FTSE -0.32% at 6:00am ET
- Fair Value: S&P -2.11, NASDAQ -0.12, Dow -22.68
- Total Volume: 1.5mil ESU and 5.6k SPU traded
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