You can forget the earnings, and you can forget the rate hike, but you can’t forget the Plunge Protection Team, or the PPT. The surprise wasn’t that the fed didn’t jack rates, the surprise was the big early rally and sell off, but the bigger surprise was the rally all the way back to the highs of the day in the final hour of the day’s trade, and all the ‘oversized upside volume’.
I’m going to keep this light. I tried to explain to the MrTopStep forum, when the ESZ15 was on its midday highs, that with the S&P futures up so much, and the news algos locking on to all the no rate cut headlines, that the markets had already ‘adjusted higher’, and what would happen after the fed confirmed that interest rates would remain unchanged? I said that I thought it would be a case of sell the news, and the ESZ15 dropped a total of 22 handles in 15 minutes after the news was released, and it only took 2 hours to run the S&P back to and above its highs. I have stood my ground that the current rally is a Federal Reserve fueled rally, and that the mutual funds are moving money back into stocks because of the zero borrowing cost environment. My upside levels in the S&P futures have remained unchanged, I have been saying 2045 and 2085 for over three weeks and yesterday’s high was 2085.25, meeting my upside objective.
I could do all the net changes and tell you how oil jumped 6% despite rising supplies, or how the Dow closed at its highest level since July, or how ‘explicit’ the Fed said it was about raising rates, or how the dollar reversed its losses after the fed indicated it was not going to raise rates. It’s all how you look at the markets and digest the news for most traders, but I look at volumes, and while they dropped on Tuesday, they came flying back yesterday with a large share of it being upside volume. Even after a 250+ handle rally, the S&P is still being bought on the dips.
Like I said we are going to keep it light today. What we can say is the overall tone of the S&P remains very bullish. In most cases we would be looking to sell right into this rally, but it still feels like the trade is buying weakness. As far as the stats going into the final trading days of October, they tend to be mixed and the first week of November is bullish. How long can this rally last? As long as the big investment banks and mutual funds continue to buy. Does that mean the ESZ15 won’t be pull back? No, there will be pull backs. Friday the Bank of Japan may be pressured into further stimulus by expanding its never ending bond buying program. Exactly what the United States wants to avoid, but clearly a direction it’s heading. Next stop on the upside 2085: ESZ 2112 and 2165.
In Asia 8 out of 11 markets closed lower (Shanghai Comp. +0.36%), and in Europe 10 out of 12 markets are trading lower (DAX -0.19%). Today’s economic calendar includes the US GDP, Jobless Claims, Atlanta Federal Reserve Bank President Dennis Lockhart opening remarks at workforce development panel, in Washington, Pending Home Sales, EIA Natural Gas Report, 7 Yr Note Auction, Farm prices, Fed balance Sheet, Money supply, and earnings from Baidu Inc (BIDU,) Briggs & Stratton Corp (BGG), Cme Group Inc (CME), Deutsche Bank (DB), Electronic Arts Inc (EA), First Solar Inc (FSLR), MGM Resorts International (MGM), Mercer International Inc (MERC), New York Times Co (NYT), Ntelos Holdings Corp (NTLS), Oshkosh Corp (OSK), Penske Automotive Group Inc (PAG), Piper Jaffray Companies Inc. (PJC), Potash Corporation Of Saskatchew (POT), Sherwin Williams Co (SHW), Starbucks Corp (SBUX), Time Warner Cable Inc (TWC), Teva Pharmaceutical Industries (TEVA), Western Union Co (WU), and World Wrestling Entertainment In (WWE).
Our View: Did the Halloween rally come early? Did the Fed deliver the goodies? Yes and Yes!!! Today we have another big day of economic and earnings reports. It’s been non-stop action, the VIX sold off down to 12.80. I have to ask again, where has all the fear gone? I’ll tell you where the fear went…the mutual funds sucked it up. Our view is that the S&P is very overbought, but it doesn’t matter. Until the mutual funds start taking some profits and flip flop the price action buying weakness will be the easier trade. We lean to selling the early rallies and buying weakness.
As always; please use protective buy and sell stops when trading futures and options.
MrTopStep WEBINAR:
Please join MrTopStep’s Danny Riley and Rob from Discovery Trading Group for this Saturdays, October 31, 2015, 10:00am CST webinar.
MISCONCEPTIONS AND REALITIES OF HIGH FREQUENCY TRADING
SPACE IS LIMITED, SIGN UP NOW!!!
- In Asia 8 out of 11 markets closed lower : Shanghai Comp. +0.36%, Hang Seng -0.60%, Nikkei +0.17%
- In Europe 10 out of 12 markets are trading lower : CAC -0.69%, DAX -0.19%, FTSE -0.89% at 7:00am CT
- Fair Value: S&P -6.34 , NASDAQ -9.37 , Dow -84.13
- Total Volume: 1.89mil ESZ and 7k SPZ
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