Post Labor Day
Last week, the unofficial final week of summer, the equity markets continued their small uptick in volatility and volume. The S&P 500 futures traded lower throughout most of the week making a weekly low of 2154.00 on Thursday, before Friday’s non-farm payroll miss of 151K, more than 20K below the consensus estimate. The ESU16 rallied on the “bad news is good news” theme toward the weekly high up to 2183.75, just three handles below the prior Friday’s high. Settling off those highs at the 2178.00 area made the week a higher close by 10 handles, or +.09%, after the prior week had broken a string of eight consecutive higher weekly closes.
Overall, while the range and volume of the week was quiet, they did remain at higher levels than much of the post Brexit trade. Going into this shortened week the ranges should begin to pick up more as the U.S. Presidential debates and prime time campaigning begin to take center stage. The September Fed meeting convenes on September 21st, and according to the Fed Fund Rate futures is projected only at a 21% probability of including a rate hike after Friday’s NFP miss. However, Goldman Sachs released a note Friday stating that the report was just good enough for an interest rate hike in September and upped their projection of the interest rate hike likelihood from 40% prior to Friday’s NFP print to 55% after the print.
Heading into this week the calendar is packed with several announcements, but none of them are expected to be real market movers, or have any affect on the projections for the Fed vote later this month. There will also be three Fed speakers on the agenda this week. While volume and trading range could pick up, it may take time before portfolio managers return to their desks and adjust positions after such a dull summer.
Q3 Comes To A Close In September
Let’s face it, it’s always hard to make money in these markets. For institutional and mutual fund managers it has been an extremely difficult last twelve months. Beginning with the correction in August 2015 that few could foresee, then a record rebound that virtually no one saw, another 10%+ decline early this year. Next was a rally right up to 2200 that very few people saw, and that was only interrupted by the Brexit vote which saw an 8% draw down in two sessions, only to be the buying opportunity of a lifetime.
Sure, if managers were in front of these moves then they made well, but the majority got short too late, then long too late. Any who are in a profit zone this year are likely to go into the end of Q3 trying to protect those profits. Meanwhile, most who have been struggling to break even the last two years may be panicky to get aggressive to avoid two losing years in a row, while the benchmark S&P 500 sits very close to all time highs.
Interest rate hikes with Fed Meetings in September, October and December, combined with a November election that is the most entertaining if not depressing campaign in a lifetime all offer an Autumn of opportunity if not volatility. Last Friday in the trading room, William Blount who offers years of experience and understanding of market cycles, posted some key commentary for subscribers with levels suggesting that the S&P could be braced to move. At the end of the day, I don’t know how long it will take the ESU6 to move or which way it’s going, but as for now we have to start paying attention to September expiration next week which means that this week should see the PitBull’s Thursday/Friday low.
Worldwide Markets
Overnight global equity markets have maintained a higher bid following the U.S. holiday. The ESU6 made it’s globex high on Monday just before the European session open at 2182.25 before falling down to 2175.00 while the cash market was closed and the globex session was abbreviated. Then overnight last night the spoos traded inside of Monday’s range in a slow grind higher trading up to 2181.50 and is currently sitting at 2179.75, up 1.75 handles on the day, with combined globex volume of 216K as of 6:28 am cst.
Heading into today’s RTH open the calendar features some decent numbers, meanwhile bulls need to be looking for a trade above 2187 that sets a push back to new contract highs. A close below 2187 still leaves this market neutral. Bears need a push back below 2170. 2170-2180 seems to be no man’s land, and whichever side can break outside of this price range and then convert to support or resistance will have the keys to the car the remainder of this short week.
In Asia, 10 out of 11 markets closed higher (Shanghai +0.61%), and in Europe 8 out of 11 markets are trading higher morning (DAX +0.26%). This shortened week’s economic calendar includes 21 reports, 3 Fed Speakers and 10 US Treasury Bill/Note/Bond auctions, announcements or settlements. Today’s economic calendar includes Gallup US Consumer Spending Measure, PMI Services Index, ISM Non-Mfg Index, Labor Market Conditions Index, a 4-Week Bill Auction, a 3-Month Bill Auction, a 6-Month Bill Auction, TD Ameritrade IMX, Gallup US ECI, and John Williams Speaks.
PitBull’s Thursday/Friday Low
Our View: While the pre-Labor holiday stats were strong, post Labor is very mixed and often inconsistent as different years traders or more in a hurry or hesitant to return to their desks. Our view is that with the ESU6 looking like it’s starting to roll over somewhat, and the historical September seasonality, that we have to start looking for the PitBull’s weakness prior to expiration week and sell rallies. 2180, 2187 and 2192 are areas that we are watching.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 10 out of 11 markets closed higher: Shanghai Comp +0.61%, Hang Seng +0.58%, Nikkei +0.26%
- In Europe 8 out of 11 markets are trading higher: CAC +0.11%, DAX +0.26%, FTSE -0.25% at 6:00am ET
- Fair Value: S&P -1.33, NASDAQ -0.29, Dow -10.59
- Total Volume: 1.7 mil ESU and 3.4k SPU traded
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