Since the S&P’s February low, we have seen volume and daily ranges lessen; but this week, so far, we have seen the slowest, choppiest trade of two consecutive sessions this year. Monday seemed like near agony; then Tuesday, the cash session range was a mere 12 handles. The choppy trade is giving a “thin-to-win” type feel, as everyone had already bought throughout the last four weeks; and evidently, by the quiet start to this week, buyers are not uncomfortable with the benchmark above the 2000 level going into today’s announcement from the FED.
Low Volume Rallies & History
Many of us have noticed the lower volume as the indexes have recovered from 52-week lows. However, this is not historically unusual; and even with the volume at its lowest of the year, it is still not as low as last years. I agree that any move on lower volume seems “suspect,” especially when retracing a stronger move that was made on higher volume. However, the fact remains that price doesn’t seem to care where volume is; and those traders who have maintained shorts using the low volume bounces as justification have meanwhile seen the S&P 500 futures climb 10%+ in just over a month’s time. The chart below confirms something that we have noticed for a long time – stocks tend to rise on low volume and sell on high volume.
Today’s FED Statement
Yesterday, the CME’s Fed Fund Rate futures showed a 0% probability of a hike today, and everyone seems to agree. However, banks are mixed as to what today’s statement will actually suggest. Goldman Sachs released a note suggesting a more hawkish tone, and went so far as to leave the possibility open for an April rate hike. Goldman’s hawkish view tends match that of the majority of institutional commentators; however, there are some with a different view, such as TD Securities, that tend to lean toward a more dovish statement today. Meanwhile, Nomura released a note to keep an eye on the rhetoric (see Figure 4 below), as they anticipate what the changed language in the policy statement should reflect.
2050 On Tap?
Since the initial rebound touch of the 2000 price level on March 4th, this level, which we have talked about for weeks, has acted as a magnet. The last eight sessions have traded within 10 handles of that price, while also trading on both sides of that level during six of those 10 days. While we believe that the market has unfinished business with the 2050 area, all this current volume, attention, and two-sided trade at 2000 has to be noted. At some point, possibly today, this level is going to show itself as a floor or ceiling, leading to the next 50-75 handle move. Meanwhile, since the S&P 500 began its leg lower on December 31st, it has traded in a near correlation with the price action from last year’s correction – which, if it holds, suggests a top at the 2050 area. The longer-term monthly and weekly charts also suggest a lower high in this area, as the charts show the indexes top-heavy and rolling over.
In Asia, 8 out of 11 markets closed higher (Shanghai Comp +0.21%), and In Europe 7 out of 12 markets are trading lower this morning (DAX +0.21%). Today’s economic calendar includes MBA Mortgage Applications, Consumer Price Index, Housing Starts, Industrial Production, EIA Petroleum Status Report, FOMC Meeting Announcement & Fed Chair Press Conference.
Our View: Overnight the ESM16 kept another tight range, after making a high early on in the Asian session of 2011.75 has travelled back down to the 2004.00 level now. We think that 2000 is going to continue to be a magnet today until the FOMC statement is released. It is difficult to say where the S&P will end the day but one rule that we tend to use on Fed days is to fade the first move as the initial reaction is usually the wrong move. Typically algos search for stops on both sides before smart money begins to move in after 1:30 pm. Our view is to be patient and careful. The morning is likely to offer very little in terms of opportunity and the afternoon fireworks can often be too volatile for many traders.
As always, please use protective buy and sell stops when trading futures and options.
Day 1 of the 2 Day Fed Meeting
- In Asia 8 out of 11 markets closed higher: Shanghai Comp +0.21%, Hang Seng -0.15%, Nikkei -0.83%
- In Europe 7 out of 12 markets are trading lower: CAC -0.25%, DAX +0.21%, FTSE +0.10% at 5:30am CT
- Fair Value: S&P -9.44, NASDAQ -10,01, Dow -100,68
- Total Volume: 900K ESH, 1.9mil ESM, 23.8k SPH and 21k SPM traded
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