Yesterday the S&P 500 futures saw it’s largest day over day decline in over a month. Weakness from Mondays reversal type price action day followed through into Tuesday as the S&P traded more than 35 handles off Monday’s high. With the second quarter underway, earnings season set to launch soon, and with the equity markets at a new 2016 high, risk becomes less appealing with many market analyst expecting Q1 earnings to be less than optimistic. We have pointed out for weeks the similarity between the August 2015 correction & recovery and January 2016 correction & recovery, and then Bob Michell in the MrTopStep IMPRO pointed out that, from the August 24th low to the November 3rd high was 51 trading days and included a retest. In 2016 if we consider the January 20th low as the low then the Feb 11th low as the retest, then from January 20th 51 trading days was Monday April 4th.
Overnight, world markets were mostly mixed as the ESM16 traded above yesterday’s cash session high. A high was made early in the Asian session, but faced resistance at the weekly and monthly VWAP, and soon went offered trading back down to 2040.50. Currently, the ES sits at 2042.00, up 3.25 handles but near the globex lows, and nearly 10 handles off the overnight highs.
For today’s session the double bottom type price action from Friday’s 2035.25 low and yesterday’s 2034.25 low looks like the pivotal area for bulls to defend. A break out of this area could target back to the 2000 area to test prior resistance, as for now, the 2050 area is continuing to see lower conviction of buyers. However, we continue to look at both sides of the coin as dip buyers have been in control just below the 9 day Moving Average, which is 2045 currently, and we are not ruling out a retest of the globex highs which come in at the 2050 area where the weekly & monthly VWAP’s converge as well as the current weekly pivot. A pop above that 2050 area would give bears little to lean on between 2050 and the 2070-75 area.
This afternoon the FOMC minutes will be released. There is a demanding interest as institutions are attempting to make sense of the seeming inconsistencies of recent Fed talk including Chair Yellen herself. After her recent dovish comments, the markets reacted by making new 2016 highs as she stated concern for current economic conditions, as well as suggesting rates could return to prior lower levels and/or the Fed could implement additional stimulus. However, several of her colleagues, as well as certain dovish members, are retaining the expectation of two hikes this year.
Currently, according to the CME’s Fed Watch tool, the market doesn’t begin to price in a rate hike until December 2016 and only giving it a 54% probability.
In Asia, 7 out of 11 markets closed higher (Shanghai Comp -0.08%), and In Europe, 6 out of 12 markets are trading lower this morning (DAX -0.32%).Today’s economic calendar includes MBA Mortgage Applications, Gallup U.S. Job Creation Index, EIA Petroleum Status Report, Loretta Mester Speaks, FOMC Minutes, and Rob Kaplan Speaks.
Our View: Market seems to be two sided right now, but really it’s not. Since the February low buyers have controlled the tape and every single small pullback. While I believe there is going to be a 2000 print soon, and probably lower, it’s hard to jump on the short train because it hasn’t taken me anywhere in nearly two months. Therefore, until the dip buyers finally break, we have to consider both sides of the market, even though we see it as being strongly overbought. Today we are watching the 2050 area to the upside, that should be solid resistance and worth a short on first touch, but there are many buy stops above that area and breakout traders would look to buy there. To the downside the 2035 area is the place of interest, that is a good buy area first touch, but once that breaks there are many sell stops down to 2025.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets closed higher: Shanghai Comp -0.08%, Hang Seng +0.15%, Nikkei -0.11%
- In Europe 6 out of 12 markets are trading lower: CAC +0.29%, DAX -0.32%, FTSE +0.51% at 5:30am CT
- Fair Value: S&P -7.34, NASDAQ -8.57, Dow -91.79
- Total Volume: 1.8mil ESM and 4.2k SPM traded
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