The reality of the markets right now is plain and simple. It’s called volume and there is none. When the CME e-mini S&P’s total volume is less than 1 million contracts, including Globex volume, we know people are taking a step back. While we all love trading we also know that its very easy to make a mistake when the S&P has a 5 or 6 handle range.
Yesterday the S&P cash closed down a measly -0.15%, the NASDAQ was off -0.09%, and the Dow closed down -0,30%. The NASDAQ settled at a fresh 13 year closing high while the VIX settled under 12. The summer has flown by and now people are in a rush to take time off and go on vacation. Europe goes on holiday for the month of August. How great would that be for the rest of us? That said, volume is an essential part of trading and yesterday volume was as low as on a holiday. Head fakes are going to be a dime a dozen.
Our view is for more of the same. Ideally it would be good for the ESU to pull back for a few days. If it doesn’t do it earlier in the week it will later.
We also want to clarify something about our call. Most days during this year’s uptrend, our strategy has been sell the early rally and buy weakness. It has been a winning strategy.
In most cases the S&P will make an early high around the time Europe closes. After the pullback we look to buy weakness because that is the trend. We tried to stay away from predicting lower prices when the S&P sold off down to 1553 in June, because we thought there was a giant disconnect. When everyone was worrying about whether higher rates meant lower stock prices, the S&P retested the 1590 level and ripped higher over the next few days.
That’s when we knew the gig was up. While we are bullish and think we see higher prices overall, part of the process has been to make a high and pull back. We have yet to see much of a pullback on this last leg up. So its up to you to decide if you want to sell the rallies and buy weakness or just go with the trend and buy weaknesses. One of these days the S&P is going to puke, just not today.
As always, keep an eye on the 10-Handle Rule and please use stops when trading futures and options, especially when the volume is thin as it is now.
It’s 6:00 a.m. and the ESU is trading down 2.75 handles at 1699.75, crude is down 47 cents at 107.03 and the EC is trading 1.3279, down 22 pips.
In Asia, 7 of 11 markets closed lower: Shanghai Comp. Up 10.02(0.49%), Hang Seng Down 298.31 (1.34%), Nikkei Up 143.02(1.00%).
In Europe 7 of 12 markets are trading lower: (DAX Down 2.16(0.03%), FTSE Down 14.73 (0.22%).
Morning Headline: Amazon’s Jeff Bezos buys The Washington Post for $250 million
Total volume: LOW 0.86mil ESU and 5.1k SPU traded
Economic calendar: Gallup US ECI, Redbook, International trade, Fed’s Evan speaks, 3-yr note auction and earnings from CVS Caremark, ADM, Dish Network, Liberty Media, Michael Kors, Tenet Healthcare, Disney, 21st Century Fox, Officemax, Zillow
MrTopStep Closing Print Video: http://mrtopstep.com/mrtopstep-on-youtube/#
