Friday, after the PPI & Retail Sales miss, it looked like the index futures could be in for a rough day. Early in the regular session, when the equity markets couldn’t hold an early rally, it was over as a wave of sell programs hit the tape keeping a steady offer on the market throughout the afternoon. The S&P futures (ESZ15:CME) closed down 22 handles, or -1.04%. The Dow futures (YMZ15:CME) closed down 192 points, or 1.37%, and the Nasdaq futures (NQZ15:CME) closed down 83.25 points, or -2.10%. It was a bad day and a bad week for the futures markets, and with the terrorist attack in France late Friday, all of this is going to help push the VIX sharply higher and the S&P futures lower. I called the high of the move and a 30 to 40 handle pull, back but after the futures sold off down to 2050, I thought there would be a bounce on Thursday or Friday and it never came. What did come was the loss of over 130 people, not all identified yet, and nearly 250 injured in France. The S&P futures has now closed lower in 8 out of the last 9 sessions, and is down 99 handles from its 2110.25 high, made on November 3rd. The six week winning streak in the S&P 500 was also broken, leaving the markets at a pivotal juncture as markets begin to enter into the holiday season.
On Sunday night the futures gapped down to 2006.50 on the open and traded as low as 1998.50 in the opening minutes, the first time that the ESZ printed below the 2000 mark since October 15th, a full month ago. However, overnight the futures maintained a bid as it rallied off the opening lows early, then went higher in the Euro session, and is currently as much as 20+ handles from the globex low. The futures have now sold lower, more than 5% in just 9 sessions from the November high, and with the low made early in globex last night and the reversal into the cash open, this could signal a reversal for higher prices. According to Stock Traders Almanac the week before Thanksgiving has closed higher 16 of the last 21 years for the DJIA. Also worth noting is last year, after the October rally, the S&P’s consecutive higher streak was broken when the futures closed lower just a single time, having fell 118 handles from the high. As of last night’s globex low the ESZ has fallen 116 handles from the November high. We are not necessarily calling a bottom, but the France attack could be the catalyst to have gotten the bus too full short, leaving the markets in search of buy stops going into one of the seasonally strong periods.
In Asia 9 out of 11 markets closed lower ( Hang Seng -1.72%), and in Europe 9 out of 12 markets are trading lower (DAX +0.47%). The weeks economic and earnings calendar is light, there are a total of 13 economic releases, 10 T-bill or T-bond auctions or announcements, 4 Federal Reserve bank presidents speaking, and the FOMC minutes.Today’s economic calendar includes the Empire State Mfg Survey.
Our View: Not only do we trade in an ever changing environment, we live in an ever changing world. The attacks on France is just the beginning of something much larger. With many countries already crippled by bad economies, the influx of migrants throughout Europe is going to make it even harder to maintain security. Good or bad events like the terrorist attacks on France can cause ‘turning points’. If you look at the S&P cash study (See all of the November expiration stats here… ) the stats tend to get better as the week goes on. Our view is this decline is getting close to a bottom. Not sure if we rip higher today or tomorrow but it’s coming; sell the early rally and buy weakness.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed lower : Shanghai Comp. +0.73%, Hang Seng -1.72%, Nikkei -1.04%.
- In Europe 9 out of 12 markets are trading lower : CAC +0.17%, DAX +0.47%, FTSE +0.43% at 6:00am CT
- Fair Value: S&P -3.91, NASDAQ -4.84, Dow -48.31
- Total Volume: 2.12mil ESZ and 7k SPZ
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