It’s going on 12:00 CT Monday morning and the ESU that made a low of 2052 at 9:22 PM on Globex Sunday, rallied, opened 32.75 handles higher and traded to a high of 2090.75 at 10:50 CT, up 20 handles for the day. That is a 39.75 handle rally in 17 hours and that’s not including all the little ups and down in Globex or the day session. As MrTopStep has always said, it takes days and weeks to knock the S&P down and only one to bring it back.
So what happened during yesterday’s trade? Nothing. The ESU15 was stuck in a 5 to 6 handle range until 1:00. There was clearly a cut back in trade and a drop in volatility. The CBOE’s VIX was down 17%. I don’t want to say I said so, or boast about me saying the ESU15 was going back up. It was a struggle, but at the end of the day, I really do not think the S&P cares that much if the Greeks come or go. It is not something the index can not get past. I really don’t care to talk about the headline news or the earnings either because I don’t care what anyone says.. yesterday was a good old S&P shake & bake.
After several weeks of trading sideways to down, and the bears calling for the end of the bull market, I really think it’s back to business as usual and that may mean a continued grind higher. There is little doubt now that with the Greek credit crisis sewn up for now, and China up over 12% in the last 4 trading days, that—I hate to say it—the world is not coming to an end and the stock market is not going to crash. I know that after a 6-year run the markets look tired but the overall price action remains the same. Sell off, use the headlines to keep people negative, a few big gaps down making series of higher lows, and the bears come charging out of the woods.
Prelude To The Next Leg Up?
So the markets come back from the brink but the big question is, are they any good, or is the S&P still range bound? Will the current push lead to the next leg up? I think they are all good questions but when I look at the ESU15 I do not believe a 2 or 3 day push higher will make up for almost a month of going down. The futures ran a lot of downside sell stops, and yesterday the ES started taking out some of the buy stops, but there are a lot more above. So how does it happen that the VIX that traded up to 19.62 on June 30, and 19.57 on July 8, and 19.04 on July 9, be trading 13.98 on yesterday’s close? Because the public always moves at the same time and in the same direction. Once the headline news algos have worn out the bad news, they start looking for the better news, and back up go the markets.
In conclusion the S&P is doing the exact same thing it has done after every sell off over the last 6 years; its pressing higher. That is the reason why it is so important to take profits when the S&P goes in your favored direction.
In Asia 7 out of 11 markets closed higher, and in Europe 9 out of 12 markets are trading lower this morning. Today’s economic calendar includes the NFIB Small Business Optimism Index, Retail Sales, Import Export Prices, Redbook, Business Inventories, Kansas City Federal Reserve Bank President Esther George speech on monetary policy and the economic outlook in Kansas City, and earnings from JMP and J&J.
Did the Air Come Out of the Tire?
Our View: The markets got real quiet, real fast yesterday. When that happens, volumes drop and the ES goes up. I do not think the rally is over, but we have a trading rule that says the ES tends to go sideways to lower after a big up day. The other part of this is the S&P cash study shows the Tuesday of the July expo up 13 / down 18 of the last 31 occasions. The only thing bothering me about the two ideas is all the buy stops sitting above the markets. I’ll leave this one up to you…
S&P cash study for the July options expiration
As always, please use protective buy and sell stops when trading futures and options.
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In Asia 7 of 11 markets quoted closed higher : Shanghai Comp. -1.16%, Hang Seng -0.41%, Nikkei +1.47%
- In Europe 9 out of 12 markets are trading lower : DAX -0.43%, FTSE -0.30%, CAC -0.12%, MICEX -0.92%, GD.AT =2.03% at 7:00 am CT
- Fair Value: S&P -6.79 , NASDAQ -8.04 , Dow -84.90
- Total Volume: 1.33mill ESU and 6.2k SPU traded
- Economic calendar: NFIB Small Business Optimism Index, Retail Sales, Import Export Prices, Redbook, Business Inventories, Kansas City Federal Reserve Bank President Esther George speaks. >
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