U.S. / China Tariff Wrecking Ball

Charts, Commentary, News, The Opening Print

The S&P 500 futures (ESZ19:CME) closed at 3114.25 Monday, 32 points below its opening print of 3146.25, after closing Friday at 3143.75. Its trading range (3110.25 – 3158.00) ominously expanded on the downside after news broke on manufacturing’s continued slowdown.

The downside gap between the all-time intraday high set overnight, coupled with a range bound lower end close, suggest the markets are topping. Macroeconomic signals suggest lower prices for stocks.

MiM Flip

Just before 2:00 CT, the ES traded up to 3124.50 as the MiM moved up to $610 million to buy, and then pulled back down to 3116.00 when the MiM began to drop. The futures went on to print 3119.50 when the MiM flipped on 2:45 cash imbalance reveal and showed $1.8 billion to sell MOC. It would then trade 3115.50 on the 3:00 cash close, and settle at 3114.00 on the 3:15 futures close, down -29.75 handles, or -0.95%, on the day.  

In terms of the days overall tone, I have a few things to say…. First off, yesterday’s selloff was long overdue, and second, the negative China headlines were the catalyst for the quick 35 handle drop. In terms of the days overall trade; total volume was above average, with 1.85 million contracts traded.

Dollar and Euro

Finally, a little congruent movement in the Dollar (DX 12-19) and Euro (6E 12-19) that made a little sense. It’s obvious that a weaker dollar is in order if the trend in manufacturing is to reverse. The Euro got a boost from Lagarde removing some fears of another interest rate reduction, but the crowd remains unsettled awaiting her first real move middle of the month.

If the Brits could get their act together, the strength shown in the Pound will revert to the Euro, and the Dollar might even drop an additional two to four points. It’s necessary, simple, basic economics at play. We’re on the side of the dollar declining, but still waiting for the scenario and the dust of the past to settle.

Soybeans

I loaded up the boat today below 870. We bought another 30 Soybean contracts, giving us a 45-contract long position at an average entry of 872.50. The commercials finally stepped back into the market today, the first real entry since Soybeans topped more than a month ago. We’re long term here, and once the effect of farmers planting 5% less Soybeans comes into play, we think we will be amply rewarded.

Interest Rates

It’s interesting to watch the movement of the 10-year (ZN 12-19) today. One would expect interest rates to decline and note prices to increase on the news from today that manufacturing has some problems. That is one of the indicators we look for when trading most any market, but more important when it comes to debt.

The fact that the dollar went opposite of this move suggest that the time to buy back into the 10-year is upon us. Charts show a potential bottom, but we’ll be patient and look for number closer to 2.00% before we act. There’s plenty to do otherwise.

We’re getting close in being able to enhance what we provide for you on a daily and ongoing basis. Keep emailing me at david@amstradinggroup.com and let me know what you want me to highlight and teach when time allows. In the interim, thanks for reading what we post, and enjoy your trading week.


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As always, please use protective buy and sell stops when trading futures and options.

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Danny Riley (3299 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.


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