#S&P #EARNINGS #CHINA #FEDMEETING

Hold it a minute… Isnt the summer supposed to be a time when the markets are slow, and people take time off and go on vacation? Yes and yes, but that’s not stopping the the extreme moves, and increased volatility in the S&P 500.

After rallying 9.5 points off its low on Fridays close, the S&P sold off in Globex as global shares sold off, and the Shanghai Composite had its worst losing day in eight years (down-8.45%). On yesterday’s 8:30 CT open, the S&P futures (ESU15:CME) opened at 2087.25, rallied up to 2080.75, and sold off down to 2056.50. After the 2:45 cash imbalance showed MOC sell $1.5bil, the futures sold off down to the 2058 level, and rally back up to 2064.40 on the 3:15 close. The Dow futures (YMM15:CBT) closed at its lowest level in 6 months, and the Nasdaq futures fell 1% settling at 4522.50, down 39.25 ticks on the day.

RISK ON / RISK OFF

Over $15 billion has moved into bond funds over the last two weeks. While the S&P was weak, it was nowhere as weak as the German DAX and the French CAC, which fell -2.6%, their worst decline in over a month. The FTSE fell 1%. Adding to the weakness is the continued slide in commodities. Yesterday, copper fell -1.3%, and crude oil closed down-1.6%. The weakness in commodities is painting a negative picture when it comes to global growth. Clearly the weakness in China is due to an economy that has grown too fast, or gotten way ahead of itself, but again I am not on the side that says there is going to be a major collapse in Asia. I am not on the side that says China is going to cause a global stock market crash. Its very important to remember that it was just last year the Shanghai Composite closed at 2,126.615. Based on yesterday’s close, the index is up a whopping 75.2% year-over-year. Additionally, based on the size of the moves in the index, the big stock market swings are becoming more often the rule than the exception. Even with Monday’s big drop, the Shanghai Composite is still up 15% since the start of 2015, and up 75% since a year-ago.

VIX CHURN & BURN

As the S&P futures fell, the VIX traded up to the 16.04 area. On July 9th, the VIX peaked at 20.05, the first day outside of the 20 area since Feb 2, but sold off hard as the ESU15 reversed higher, bottoming at 11.71 on July 20, which was the lowest level seen since Dec 5, 2014 (11.53 low that day). On July 23rd the index bottomed at 11.73, before closing at 13.74 last Friday. Yesterday’s move above the 200-day moving average at 15.38 suggests rising risk. The VIX has been below its 200-day moving average since July 13.

MARKETS THROW COLD WATER ON YELLEN’S RATE HIKE

Is there ever going to be a perfect environment to raise interest rates? As we go into the first day of the Federal Reserve’s 2 day meeting, there is a lot of talk floating around about the fed’s decision to hike interest rates in 2015. MrTopStep has stuck with the idea that there will not be a rate hike in 2015. The recent volatility, and a possible global slowdown, has hardened that case. Personally, I do not know how the fed can raise rates when Europe is full steam ahead with its bond buying / quantitative easing programs. The IMF has warned not to increase rates, and China is sending shock waves through the global financial markets. Today, traders will get a look at a possible Federal Reserve / Janet Yellen ‘back track’. Only time will tell….

In Asia, 8 out of 11 markets closed lower (Shanghai Comp. -1.68%), and in Europe 10 out of 12 markets are trading higher this morning. Today’s economic calendar starts with the beginning of the FOMC Meeting, Redbook, S&P Case-Shiller HPI, PMI Services Flash, Consumer Confidence, Richmond Fed Manufacturing Index, 2 Yr-Note Auction, and earnings from F, TWTR, JBLU, GLW, UPS, MRK, PFE, DD, BP, LH, CMI, YELP, SIRI, X, GILD, GRUB, MAS, CNC, SVU, ESRX, BTU, BWLD, CHRW, ECL, TXT, ARG, AKS, NCR, IACI, AFL, WYN, DHI, APC, SPWR, MMC, PCP, AIZ, EW, IR, WNC, JEC, GPN, BGFV, and RAI.

Our View: Getting scared yet? Well if you’re not, a lot of folks are. The ESU closed higher 8 days in a row, and has now closed down 5 in a row. In most cases that would mean the S&P is close to a bounce, but things still feel somewhat unstable. I figured, after a record downday in China, that it would be hard to follow it up with another big decline, and the Shanghai Comp. closed down -1.68%, but Hang Seng closed up +0.62%, and that has the ESU up 12 points at 2076.50. Our view is to sell the early rallies and buy weakness. We think the ES is going back to the 2085-2090 level. Not sure about today, but soon.

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

In Asia 8 out of 11 markets closed lower : Shanghai Comp. -1.68%, Hang Seng +0.62%, Nikkei -0.10%
• In Europe 10 out of 12 markets quoted are trading higher : DAX +1.49%, FTSE +0.78%, CAC +1.22%, MICEX +1.20%, at 6:300 am CT
• Fair Value: S&P -6.83 , NASDAQ -9.01 , Dow -81.14
• Total Volume: 1.77mil ESU and 5.5k SPU traded
• Economic calendar: FOMC Meeting Begins, Redbook, S&P Case-Shiller HPI, PMI Services Flash, Consumer Confidence, Richmond Fed Manufacturing Index, 2 Yr-Note Auction .
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