It’s Monday afternoon and the Martin Luther King Holiday. During the Globex session the ESH16 traded as low as 1859.75 and as high as 1890.00. At 2:30 CST, the ESH16 settled at 1873.00, down 3.5 points. Despite the holiday the futures traded a total of 425,000 contracts in the abbreviated holiday session. There were some good ups and downs but an eerie quiet came over the markets as traders waited on China’s GDP release and its effect on the global markets and the S&P.
The ESH16 has been filling a lot of downside gaps and the latest one filled on Friday was at the 1861 level. The next big one is the Aug 24 limit down 1831 level. With the Dow and S&P down over 8% and the Nasdaq down over 10% in 2016, clearly the risk has gone up and so has the Chicago Board of Options (CBOE) volatility index, the VIX, which traded up to $27.02 on Friday’s close.
During Friday’s session the ESH16 broke it’s August 24 low. Higher rates, China and crude oil remain the main drivers right now, but it may be time give earnings growth a look.
Overnight came the GDP from China which was in line with expectations and as a result sent worldwide markets into rally mode. The S&P futures held a bid during the globex session making a high of 1907.50, up 32.50 handles, or +1.55%, as we write this morning at 6:00 am CST.
Now that the Chinese GDP is out of the way, much of this week will be centered around earnings in the U.S. as many of the benchmarks fill the week including GE, GS, BAC and VZ, to name a few. General expectations for Q4 2015 earnings are on the bearish side as forecasts have predicted a 5.7% decrease in earnings per share year over year. Thus far, 30 of the S&P 500 have already reported Q4 earnings with 23 of those 30 having beat the mean estimate per share, while 14 of 30 have reported larger sales than expected.
The shortened week has a low level of economic reports but a high level of earnings reports. Market optimists may be holding out hopes that the earnings will come out better than expected and somehow support the markets, but there is also a risk that the earnings will only add to the markets woes and help push stocks even lower. When you consider that US stocks have posted their worst 10 day start to a year in history, traders are going to start to readjust their sights on the 2015 4Q earnings.
In Asia, 11 out of 11 markets closed higher (Shanghai Comp +3.22%), and in Europe 12 out of 12 markets are trading higher (DAX +2.33%). This week’s economic calendar includes 18 economic reports, 4 Treasury auctions, 6 Treasury bill/note announcements and one weekly bill settlement. Today’s economic calendar includes Housing Market Index, 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction, Treasury International Capital.
Fridays MOC; BUY $ 2bil
Our View: What is the main driver of the ESH16? Is it China, oil or the Fed? I think it’s a combination, but I also think the S&P is very oversold, and with oil trading back above $31.00 this morning and the China numbers out of the way, the ES has had a big bounce. From Friday’s 1849.25 low to this mornings high the ES has rallied a total of 58.25 handles, and from Sunday night’s Globex low the ES has rallied 47.75 handles.
I felt pretty positive the ES would rally after the China (GDP), and after the futures rallied a little and sold off I put this out:
Mr TopStep @MrTopStep Traders: 1864 or 1904?
Mr TopStep @MrTopStep See you at 1904 … And say hello to Turn Around Tuesday
I felt strongly the ES would rally, but I also know this is far from over. Our view; sell the early rallies and buy weakness. Don’t forget about the the $2bil bought on Friday’s close.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 11 out of 11 markets closed higher: Shanghai Comp +3.22%, Hang Seng +2.07%, Nikkei +0.55%
- In Europe 12 of 12 markets are trading higher: CAC +2.67%, DAX +2.33%, FTSE +2.15% at 6:30am CT
- Fair Value: S&P -7.65 NASDAQ -9.48 Dow -90.15
- Total Volume: 3.4 mil ESH and 13.3k SPH
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