THE S&P 500 FUTURES; BIG GREEK BEAR SQUEEZE CONTINUES

_{S&P 500 INDEX MONTHLY CHART}

S&P 500 5 DAY CHART

U.S traders may not, like it but if you want to be part of the big moves in the markets, you have to start trading the European shift. As things go more global it’s going to mean more hours and a lot more focus.

I bet most readers of MrTopStep’s Opening Print think I enjoy it when the S&P futures go flying up and “squeeze” the shorts out, but after so many times of seeing the ES sell off and rally, all I do now is just shake my head. Not so much at the seller’s getting caught short again, but at how long this continuous pattern continues to work.

We have never seen the S&P doing what it’s doing today. In the 6th year of the bull market run, the S&P finds itself with less buying power, but not enough selling to keep it going down. As I said to the PitBull yesterday, it’s a fixed game. The headline news algos acted on all the ‘bad’ news. On the way down, there were big waves of selling that caused a big pickup in volume. The sellers reacted on the downside, backed by waves of negative news, and then all of a sudden the selling dried up leaving the crowd short.

As the crisis dragged on, the S&P stopped going down, but it was not going up sharply either. After a big higher low, in came the same old patterns that we have been seeing for the last 3 to 4 years; it’s called back and fill price action. Once that starts, and the cash buyers show up, the premium levels between the ES and the S&P cash widen out. When that starts happening the algorithmic programs start searching for the upside buy stops in the ES futures. Once elected, the buy stops actually ‘lift’ the offer in the ES, that makes up an index arbitrage buy program. It’s one big mechanism that once in motion you don’t want to be on the other side of. Adding to the upside party was Mario Draghi announcing emergency lending to Greek banks, the Iranian nuke deal, July mid-month rebalance, July options expiration, and a wave of better earning and economic news. All of this has fueled the S&P straight up. It became an even more one-sided trade than the sell off.

NO FEAR: VIX DROPS FROM 19 to 12

_{Monthly CBOE MKT VOLATILITY IDX chart}

5 Day CBOE MKT VOLATILITY IDX chart

When fear enters the ‘tape’, several types of selling hit the S&P. To gauge that, you have to follow the CBOE’s Volatility Index, the (VIX). If you trade the S&P, next to it should be the VIX. The 5 day chart does not show the 19.00 high but the chart does show an acceleration to the downside. While I do not trade the VIX, I do believe that there are certain levels to key off of, and 12.00 (made a 11.87 low yesterday) is a big area of support. A low VIX, plus low volume, makes it very easy to push the ES higher. A week ago the ‘fear’ was of a major selloff, but yesterday made it 5 straight higher closes in a row.

Will the S&P pull back? Sure it will… once the July options expiration is over and all the shorts have been squeezed out.

In Asia 8 out of 11 markets closed higher, and in Europe 8 out of 12 markets are trading modestly higher this morning. Today’s economic and earnings schedule is light. It includes the Consumer Price Index, Housing Starts, Consumer Sentiment and earnings from GE, HON, KSU, PGR, GWW, ALV, CMA, KNL, FHN, and STI.

5 S&P UP DAYS IN A ROW

Our View: The earnings have been bad, right? No, so far many big names have reported better than expected, and yesterday Google (GOOG) was up $45 after the close. I said on a video during the Greek crisis that the S&P would be at 2200.00 by the end of the year. The Nasdaq Composite traded up to a record high, up 1.3%, and is up a whopping +3.5% this month. The markets are in motion and there has been no letup. Today’s S&P cash study shows the Friday of the July expiration as the weakest trading day of the week, and with the S&P up 5 days in a row, we think there is a possibility of a pull back, but with the volume so thin we are not sure how far they can go. We still have a big band of resistance at the 2118 to 2122 level, but there are also a ton of buy stops up into that area. Taking a step back from this right now. Just not sure what’s going to happen next. I will play it as I see it but it’s better to be safe than sorry.

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

In Asia 8 of 11 markets closed higher : Shanghai Comp. +3.51%, Hang Seng +1.00%, Nikkei +0.25%
• In Europe 8 out of 12 markets are trading modestly higher : DAX -0.26%, FTSE -0.11%, CAC +0.08%, MICEX +0.36%, GD.AT CLOSED% at 6:30 am CT
• Fair Value: S&P -6.67, NASDAQ -7.99 , Dow -80.19
• Total Volume: 1mil ESU and 8.2k SPU traded
• Economic calendar:Consumer Price Index, Housing Starts, Consumer Sentiment . >

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