A few years ago MrTopStep noticed a pattern called the “Late Friday Rip.” For several weeks, every Friday afternoon the S&P futures would rip higher. As the idea caught on and more traders were watching for it, the pattern stopped working, just like Mutual Fund Monday did years ago.
Over the years I have been good at picking out patterns, but in today’s high-flying world of algorithmic and program trading it doesn’t take long for the robots to destroy them. After its highest close of the year, the S&P 500 fell prey to a few of our best trading rules. Specifically, the rules in play were Countertrend Friday and “The S&P tends to go sideways to lower after a big up day.”
Fooled everyone
There have been a few Late Friday Rips lately, but last Friday was not one of them. After trading down to the 2046.50 area around 11:00 ET, the S&P 500 futures (ESH15:CME) chopped higher, eventually trading up to the 2057.00 area around 1:00, then sold off to the 2052.00 area. As it got near the close, it ran back up to the 2057.00 area again. Many thought the Late Friday Rip was back, or was it? The S&P had rallied too early and the Late Friday Rip turned into the Late Friday Dip, fooling everyone who had bought into the strength.
Complacency
There was a high level of complacency surrounding the Greek vote going into last Friday’s trade. After selling off hard and rallying hard, the ESH15 seemed to be signaling that the vote had already been priced in. But as crude oil weakened late in the day and more Greek vote headlines hit the tape, the S&P futures started to weaken, going from 2057 down to 2043.50. While the overall volume in the S&P was the lowest of the week, the futures got hit by several waves of selling and S&P index arbitrage sell programs. Once the news was out that the leftist party had won, the S&P futures sold off down to 2025.50 and back up to 2042 and was trading 2037.50, down 6.5 handles at 7:00 ET.
The real problem the ECU faces after the vote is whether the win will embolden populist movements in other places in Europe. After years of trying to work with the Greeks and all the market disruptions, it looks like the battle for Greece is a foregone conclusion as the battle lines have been drawn.
In Asia of 11 markets closed higher and in Europe out of 12 markets are trading higher this morning. This week’s economic calendar includes 18 economic reports, 12 T-bill or T-bond auctions or announcments, the two-day FOMC meeting and the US GDP. Today’s economic calendar includes the PMI Services Flash, Dallas Fed Mfg Survey, 3- and 6-month T-bill auction and earnings from Microsoft (NASDAQ: MSFT), Texas Instruments (NASDAQ: TXN), DR Horton (NYSE: DHI), and Norfolk Southern (NYSE: NSC).
Syriza’s victory
Our View: I do not get the sense that any of this nonsense is even close to over. The continued weakness in the price of crude oil (44.35 low overnight) and the euro currency (1.1102 low overnight) is weighing on interest rate futures and stocks. The continued strength of the dollar makes American goods more expensive overseas, even as Europe and Asia struggle to stave off deflation. While the ECB’s wholehearted decision to enact stimulus has given the markets some hope, every bit of good news in the US economy, which President Obama listed in last week’s State of the Union, is offset by troubling news overseas. This fuels the uncertainty that creates more volatility. Our view is that we see some type of retest of last night’s lows. Sell the early rallies and buy weakness.
Video: “S&P500 Early Friday Rip … Then Dip”
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 of 11 markets closed higher: Shanghai Comp. +0.94%, Hang Seng +0.24%, Nikkei -0.25%
- Earlier in Europe 6 of 12 markets are trading higher: DAX +0.66%, FTSE -0.53%, MICEX -2.14%, GD.AT -2.42%
- Fair value: S&P -6.06, Nasdaq -6.88, Dow -67.13
- Total volume: 1.35mil ESH and 5k SPH traded
- Economic schedule: PMI Services Flash, Dallas Fed Mfg Survey, 3- and 6-month T-bill auction and earnings from Microsoft (NASDAQ: MSFT), Texas Instruments (NASDAQ: TXN), DR Horton (NYSE: DHI), and Norfolk Southern (NYSE: NSC)
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