The S&P 500 Futures; North Korean Nuclear Test and China Worries

Commentary, News, Our View, The Opening Print, Video


The S&P 500 futures held up during Tuesday’s trade. After a sell off down to 1995.25, the ESH16 rallied all the way back to 2014.25, then sold off down to 2002.75 before the 2:45 cash imbalance showed MOC Buy $340mil. After the the small pull back the futures rallied back to 2012.00 on the 3:15 futures closes, rallied up to 2013.75 on Globex and just before 9:00pm CT, the S&P futures sold off 26 handles in less than 2 hours. The markets have been nervous over possibility of future rate hikes, terrorist attacks around the world, weakness in China, and a batch of weak economic reports in the US. Despite all, that the S&P futures have been trying to move back up, but the special announcement on North Korean radio saying Pyongyang was going to make an “important” announcement at 12:00pm Korean time about the magnitude of the 5.1 quake spoke for itself.

Lets face it traders, the markets have a ‘nervous’ tone to them, almost like they are looking for a reason to sell off, but the mutual funds have been putting money to work on the first few days of the new year. Monday‘s imbalance was 2.5bil to $3bil to buy, and yesterday’s imbalance was $340mil to buy. While we have a big economic schedule, the main thing we will be paying attention to is the PitBulls Thursday / Friday low the week before the Jan expiration (Download all of the January expiration stats here). The January S&P cash study shows next Monday as the weakest day of the week and Tuesday the most bullish. This fits the pattern we have been seeing with the ES selling off on Friday’s and Monday’s, and rallying on Tuesdays. As I said in the video, I am not ready to put one foot in the bulls or the bears camp, as I think there is going to be a lot of two-way price action. Like the saying says; as January goes, so goes the year.

From Stock Trader’s Almanac

As defined in the Stock Trader’s Almanac, the Santa Claus Rally (SCR) is the propensity for the S&P 500 to rally the last five trading days of December and the first two of January an average of 1.4% since 1950.

The lack of a rally can be a preliminary indicator of tough times to come. This was certainly the case in 2008 and 2000. A 4.0% decline in 2000 foreshadowed the bursting of the tech bubble and a 2.5% loss in 2008 preceded the second worst bear market in history.

Including this year, Santa has failed to pay Wall Street a visit in just 15 years since 1950. Of the previous 14 occasions, January’s First Five Days (FFD) was down 10 times and the January Barometer (JB) was negative 8 times. When all three indicators were negative, the full year was either flat (+/– 5.0%) or negative with the lone exception being 1982, the year the last secular bull market began.

Jan Early Indicator Trifecta

In Asia, 8 out of 11 markets closed lower (Shanghai Comp +2.25%), and in Europe 10 out of 12 markets are trading lower (DAX -1.45%). Today’s economic calendar includes the MBA Mortgage Applications, ADP Employment Report, International Trade, Gallup U.S. Job Creation Index, PMI Services Index, Factory Orders, ISM Non-Mfg Index, EIA Petroleum Status and the FOMC Minutes Report.

Our View: I don’t think the North Korean nuke test will keep the S&P down for long. What could keep it down is any one of the nine economic reports that are set to be reported this morning, and then late in the day we get a look at the FOMC minutes. Our view is that you better grab your chin straps early, there is going to be a lot of big dips and rips. Our view is if the ESH does open sharply lower we lean to buying it, or the first dip after the open, and then sell the early rallies.

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

‘S&P 500 Futures and Day 2 of 2016’


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    • In Asia 8 out of 11 markets closed lower : Shanghai Comp +2,25%, Hang Seng -0.98%, Nikkei -0.99%
    • In Europe 10 of 12 markets are trading lower : CAC -1.61%, DAX -1.45%, FTSE -1.67% at 5:00am CT
    • Fair Value: S&P -7.73, NASDAQ -,8.84 Dow -92.52
    • Total Volume: 1.68mil ESH and 6.3k SPH
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Danny Riley (3547 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.

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