The Wednesday Late Afternoon RIP

Wednesday when the S&P futures (ESU15:CME) opened higher at 1938.75, near the overnight high and up more than 25 handles, all looked well until the sell programs took over very early on in the cash session and knocked the futures down more than 25 handles, trading back to unchanged on the day during the first 90 minutes of trading. The index went on to find something of a late morning double bottom before moving higher midday back to the regular-trading-hours (RTH) open. From there it chopped most of the afternoon until the last half hour of the day when the ESU15 ripped higher by 20 handles to close just under the 1950 level.

Yesterday in the room, Tim Haefke took an early long at 1919 and rode it higher, and mid afternoon called out the afternoon target:

Top Notch( 2:09:50 PM ):- looking at the 1947.25 price if the ESU does get legs. NQU target of 4255.75.

The futures opened last nights globex session at 1947.50, and quickly rose 10 handles up to 1957.50, before traveling back down and briefly turning red during the early Asian session. Once Europe’s screens came alive, the S&P rallied back above the overnight high to 1958.50, where it’s current high is at 6:00 a.m. CST.

1950 The New 2100?

I have been talking about 2100 much of this year as being the gravity point in the S&P 500 futures. The price never seemed to drift too far away from 2100 for too long since it first touched it back in February, as 22 of 27 weeks traded within 10 handles of that price, with 21 of those trading both sides of that level. Today will mark the 12th day since that level was last touched, tying the longest time frame since that price was first touched, and I think we make it to day 13.

Last week started noting the 1950 area on the chart and identified its importance, suggesting that there were buy stops above and sell stops below that level, and I think the charts show that we were correct. 8 of the last 9 futures sessions have either traded both sides of that 1950.00 price, or have traded within 10 handles of it. Out of the last 11 sessions since ESU started pulling away from 2100, all of them have traded within 20 handles of 1950, and we don’t see this as a coincidence. Furthermore, in limited amounts of trading we are seeing the same pattern that we saw with ESU 2100, which is that there exists higher volume below, and lower volume above that key pivot.

MrTopStep doesn’t think that the selling is completely over, and that the 1830 lows from last week will be retested. In any event, we are starting to think that 1950 could be a key pivot for trading this fall. I think ultimately we see higher prices year end, but most likely not until 1950 is crossed a few more times.

2011/2015 Correction Correlation

As we have been noting since last week, the interesting similarities that seem to exist between the summer correction this year, and the summer of 2011, the most recent prior correction. This correlation appears to be continuing for the time being. And if indeed the market does continue to pattern after it, then that pivot would possibly be 1950. On the chart is marked a side by side comparison with the current years correction and 2011. Notice the 1200 pivot compared to 1950 pivot as well as price action at the 50% retracement.

All Eye’s On August NFP?

Much has been said, and perhaps overstated, concerning the timing of the release of the August non-farm payroll (NFP) number tomorrow, and the FED meeting starting in a few days. While many consider it to be the the most important NFP in many years, it’s hard to think that the FED will be relying so heavily on a single month’s worth of a single indicator. Even the Fed’s Dudley was reported to say that to him, the NFP is secondary to the University of Michigan survey, and now even voices in the crowd such as Bill Gross, former CEO of PIMCO, and others who strongly predicted a September rate hike, seem to be backing off from that commitment.

Heading into tomorrow’s number, the consensus for August seems to be hovering around 215-225k. Meanwhile, Deutsche Bank lowered expectations this week to 170k, while Barclay’s maintains a 225k viewpoint.

August has historically been a disappointing release, 11 of last 15 years, and 21 of last 27 years, the August NFP was weaker than consensus. The last four years the August NFP number has missed by an average of 55k, and since 1988 the average forecast error for August has been -61k.

However, perhaps the disappointments have been exaggerated as 13 of the last 15 years Aug NFP was revised upward in later months, usually moderate to significantly higher, of the two that were revised lower, one year was only by -3K.

Over the last 11 August NFP misses, 8 of those times the S&P 500 (^GSPC:SNP) closed lower, with 3 occurrences being 1% or greater. This year, NFP release day has closed down 6 of 8 months, additionally 6 of 8 months has seen a close below the 8:30 CST cash open on 6 of 8 occasions.

Interesting to note, just minutes before the NFP release the Fed’s Lacker will be delivering a speech titled “The Case Against Further Delay”.

S&P 500 FUTURES TAKE A BEATING BUT KEEP TICKING

The S&P has taken a beating since two weeks ago. You can see that as the volume picked up, so did the level of MOC selling. One of the things we have constantly written about is how the MOC buying switched to selling on the last trading days of the March or the last trading day of the first quarter.

In Asia, 8 out of of 11 markets closed lower (Nikkei. +0.48%), and in Europe 6 out 12 of markets are trading higher (DAX +1.60%). Today’s economic calendar consists of:Gallup US Payroll to Population, Jobless Claims, International Trade, PMI Services Index, ISM Non-Mfg Index, EIA Natural Gas Report, 3-Yr Note Announcement, 10-Yr Note Announcement, 30-Yr Bond Announcement, 3-Month Bill Announcement, 6-Month Bill Announcement, Fed Balance Sheet, Money Supply, Minneapolis Federal Reserve Bank President Narayana Kocherlakota Speech, and earnings from CIEN, CPB, PAY, JOY, GCO, MDT, COO, LE, UTIW, GEF, BLOX, ESL, XCRA, STRM, and HOFT.

Our View: I said yesterday in the room that with China closing Thursday & Friday for Victory Day, that can only help the S&P futures. Furthermore we are entering the last half of the final week of the summer travel season this year, and talking to traders yesterday, I know that many of them are taking off today and tomorrow with the long Labor Day weekend approaching and the markets closed on Monday. We are seeing volume getting smaller on the ESU, and I think it will get even lighter the next two days as traders are expecting a potential volatile season approaching with China, FOMC rate hikes, seasonal weakness, elections coming up, as well as being on the heels of the biggest selling since 2011, and traders will take advantage of a couple days away from the screens before things get busy. The stats into Labor Day are also favorable, and I think we are likely to see a low volume, choppy thin-to-win type environment with price above 1950.00 aiming for upward stops.

And always remember to use stops when trading futures and options…

In Asia 7 out of 11 markets closed higher : Shanghai Comp. -0.20%, Hang Seng -1.18%, Nikkei +0.48%
• In Europe 12 out of 12 markets are trading higher (6:30 am CT) :ATX +1.25%, DAX +1.60%, FTSE +1.34% at 6:00 am CT
• Fair Value: S&P -1.94, NASDAQ -1.36, Dow -14.16
• Total Volume: 2.2 mil ESU and 4.8k SPU traded
• MBA Mortgage Applications, Bank Reserve Settlement, ADP Employment Report, Productivity and Costs, Gallup U.S. Job Creation Index, Factory Orders, EIA Petroleum Status Report, Beige Book, and earnings from VRA, GIII, NAV, FIVE, NCS, VRNT, ABM, OXM, SEAC, CFI, CRDS, ISLE, CTLT, MIND, NPD, and FENX.

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