When the S&P 500 futures traded up to 2073.75 on Globex and opened higher off the 8:30 CT open, with crude oil down -2% and gold down -0.50%, we know that there was some type of liquidation going on. The S&P futures reacted in kind by selling off down to 2061.00. Everything was looking weak, but like always the same algorithmic and HFT programs that pushed the futures down pushed the futures back above the 2073.75 Globex high up to a new day high at 2088.75, up 18.5 handles on the day. It has been an amazing turnaround for the S&P, and while common sense would say the rally must be close to running it course, in this game, there is no common sense. It’s Thursday at 1:00, and from Mondays 1981.50 low to the current 1985.75 high, the S&P futures are up 104.25 points, or +4.10% over that period.
Global PPT At Work
The timing of Brexit could not have been worse for the bears. After a sharp two day sell off, the final three trading days of the quarter saw a big reversal, with the big institutions and mutual funds selling bonds and buying stocks. We could see the buying going on during the day and when the MOCs showed buying on the closes, but then Bank of England’s Mark Carney sent markets on a wild ride towards the end of Thursday’s European close when he said he was eying a summer rate cut and other easing measures in coming months. A few days ago, Italy announced it was going to give its ailing banks $40 billion, and yesterday the Bank of England said it is preparing for more quantitative easing and lower rates. These are great examples of how the central bank’s work in times of economic turmoil…they just print more currency.
Endless QE
The S&P dropped 6% from last Thursday’s night to Monday’s low and has rallied 5% throughout the last 3 days. This is another great example of how global quantitative easing can hult declines. This is nothing new and will continue to be how the price action of the S&P works. The fact that the Fed can’t raise rates and the Bank of England is talking lower rates is another great example of how the easing measures continue to support the markets. There is no interest rate hikes coming now or in the future. The Stoxx Europe 600 rose +0.2%, the FTSE is up +0.2%, on track for its best week since 2010. Word that the ECB is considering loosening up its rules for bond purchases have also been supporting the the markets which have helped support Italian and Spanish bonds. In the end, when the markets got spooked and sold off the central banks did what they have done since the credit crisis began, sold more bonds and printed more money. We all know this is working now but we also know this can not go on for ever.
Overnight the ESU16 made an early high of 2091.50, sold off down to a low of 2981.50, and at 6:10 am made a high of 2089.50. Total volume is 164,000 contracts traded.
In Asia, 9 out of 11 markets closed higher (Nikkei +0.68%), and In Europe 9 out of 12 markets are trading higher this morning (DAX +0.32%). Today’s economic calendar includes Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, Loretta J. Mester Speaks, and the Baker-Hughes Rig Count.
Dow Up +2.75%, S&P Up +2.5%, Nasdaq Down -4.10% in YTD
Our View: It’s been an easy trade… if you were buying it that is. It’s almost ridiculous how much the S&P futures have gone up in the last 3 days but it is a good example of the big funds and banks being over hedged. The little guys that trade the ES don’t let it run 50 or 60 handles in their face. They get out and take small losses so they can come back and play the next day. Our view is that the first trading day of the 3Q has the Dow up +0.50% on average, but with the S&P up over 5% in 3 days and the holiday weekend upon us, there could be some profit taking.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 10 open markets closed higher: Shanghai Comp +0.10%, Hang Seng closed %, Nikkei +0.68%
- In Europe 9 out of 12 markets are trading higher: CAC +0.11%, DAX +0.32%, FTSE +0.51% at 6:30am ET
- Fair Value: S&P -8.36, NASDAQ -9.13, Dow -102.44
- Total Volume: 2.3m ESU and 10.9k SPU traded
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