You know the old song ‘the worms come in and the worms go out’? Well that’s how money is moving in and out of the markets too. On Friday’s close, the last trading day of April, the mutual funds bought $2.2 billion in stock on the NYSE and $2.6 billion in the S&P (SPX). This buying continued right into Monday’s trade with more MOC buying on the close and a push up to 2077.50. That was the good part, but the bad part came overnight when concerns about the global economy pushed the global markets lower, and the dollar sold off against the YEN and EURO.
At 7:00 ct the S&P futures (ESM16:CME) were trading 2059.00, down 15.25 handles with a 2057.25 low, that is a total of 20.25 handles off yesterday’s 2077.50 high of the day, after the S&P had its best day in two weeks. The global weakness showed up first in Asia after a private gauge of Chinese manufacturing showed a dip in April. Iron ore and copper prices fell sharply and crude oil futures in the US traded down $ 44.13 a barrell. The data shed concerns of the health of the world’s second largest economy, and the weakness rolled into Europe where the Stoxx Europe 600 was down 1.7% halfway through the session, which was weighed down my mining companies. Additionally, the European Commission said Tuesday that growth in the eurozone and the wider European Union will be slightly weaker this year due to the economic slowdown in China and concerns ahead of the UK referendum on the EU membership BREXIT.
The yen hit an 18 month high against the dollar. The dollar was last down 0.6% against the yen at ¥105.8040, and the British pound hit its strongest level against the dollar since January. All in all it was a busy overnight session with everything from stocks, metals and currencies moving sharply.
One of the things about the current rally in the US stock market is that the public remains weary. After sharp declines in July and August, and another sharp drop to begin this year, the S&P has made a move all the way up to ESM 2105.00, and then fell to 2046 last Friday. The futures are struggling this morning after another big run up. Will the futures continue down this morning? The most recent patterns are that the futures generally rally pre:830 open, come down a little and rally again after the open. The big question is, do the mutual funds have cash to buy later in the day, or in Part 3) of the trading day?
We are going to keep it light today. The S&P is still range bound, and until we see a significant move up or down, we really do not think things will change much. Our advice is to ‘embrace the chop’.
In Asia, 6 out of 11 markets closed lower (Shanghai +1.85%), and In Europe, 12 out of 12 markets are trading lower this morning (DAX -1.77%). Today’s economic calendar includes Motor Vehicle Sales, Gallup US ECI, Redbook, Loretta Mester Speaks, 4-Week Bill Auction, and Dennis Lockhart Speaks.
Our View: Will the mutual funds save the day again? It’s highly possible. Our view is to buy the early weakness and sell the rallies in the first part of the day and wait to see if the mutual funds have money to put to work. Keep an eye on the GLOBEX highs and Lows.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed lower: Shanghai Comp +1.85%, Hang Seng -1.85%, Nikkei -3.11%
- In Europe 12 out of 12 markets are trading lower: CAC -1.61%, DAX -1.71%, FTSE -1.19% at 6:30am CT
- Fair Value: S&P -6.04 , NASDAQ -8.19, Dow -82.56
- Total Volume: 1.3mil ESM and 4.4k SPM traded
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