When the BoJ decided not to increase its quantitative easing programs the S&P futures (ESM16:CME) fell. That was in Part 1) during the overnight Globex trade. Like many occasions when the futures drop sharply they trend to short cover prior to Par 2) the 8:30 CT futures open. So far so good. Our view from yesterday’s Opening Print was to buy the early weakness and keep an eye on the Globex high and low. After the 8:30 open there were some small sellers, but right after the buyers showed up, pushing the ESM16 all the way up to 2093.50. Like many traders I tried to sell it and every time I did the futures continued higher. The buy programs that squeezed out all the short sellers came to a halt around 11:15 CT, or just before or after the European close, and then Part 3) showed up late in the day when crude oil sold off a little and the S&P’s sold off all the way down to the 2065.00 area.
After the 3:15 CT close the ESM16 rallied all the way up to the 2076.00 level. There were several attempts on both the upside and downside, and at 7:20 CT the ESM16:CME is trading at 2072.25, unchanged. The last trading day of April should see some type of selling, but the first trading day of May has the Dow up 13 of the last 18 occasions.
May / June Disaster Area
As the best six months for stocks comes to an end, the worst six months for stocks begins with what Stock Trader’s Almanac calls, ‘May / June Disaster Area’. Between 1965 and 1984 the S&P was down 15 out of 20 Mays. Between 1985 and 1997 May was the best month with 13 straight gains, gaining +3.3% per year on average, and up 9 down 8 since. Memorial day weeks were up 12 years in a row (1984-1995) but down 11 of the last 19 years. Since 1950, presidential election year May ranks poorly: #11 for Dow and S&P, and #9th for the NASDAQ.
According to the probability charts May tends to be firm in the first few days, gets weak later in the week, and then closes out firm. June also starts out firm and ends weak. We think it’s fair to say that no one knows for sure which way the markets are going to go, but after all the big downs and big ups in 2016, and all the global quantitative easing going on, we have not seen the whole picture yet. What we do know is that ‘Sell in May and walk away’ is real but it really didn’t start until July last year. Only time will tell…
In Asia, 8 out of 11 markets closed lower (Shanghai Comp -0.25%), and In Europe, 11 out of 12 markets are trading lower this morning (DAX -1.76%). Today’s economic calendar includes the 5-Yr TIPS Settlement, Rob Kaplan Speaks, Personal Income and Outlays, Employment Cost Index, Chicago PMI, Consumer Sentiment, Baker-Hughes Rig Count and Farm Prices.
April Month End Walk Away?
Our View: The last 3 days and the first 3 days of the month is when the mutual funds markup and markdown stocks. We tend to think the mutual funds marked up stock early in the day and sold late in the day. That’s what may happen again today. Yesterday, I did a lot of writing about being patient and picking your spots better, but I didn’t listen to myself. My trading ideas were correct but my execution of the idea was way off. That said today is the last trading day of April and our view is the same, buy the early weakness and sell the rallies, keeping in mind a possible noon time walk away.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower: Shanghai Comp -0.25%, Hang Seng -1.50%, Nikkei closed%
- In Europe 11 out of 12 markets are trading lower: CAC -1.71%, DAX -1.76%, FTSE -0.85% at 6:30am CT
- Fair Value: S&P -6.04 , NASDAQ -8.09, Dow -81.36
- Total Volume: 1.9mil ESM and 6k SPM traded
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