The S&P 500 futures (ESM16:CME) continued its upward ascent yesterday trading all the way up to 2075. Crude oil futures (CLK16:NYM) traded up to $42.40 a barrel as Russian President Putin continues to push OPEC ,and non OPEC, members to enact production freezes.
We could do all the ups and down of yesterday’s trade, but what actually happened, and why is it getting so hard to trade? In the first part of yesterday’s trade the S&P futures were stuck in a six point range until the futures started breaking out. The other reason it is getting harder and harder to trade is that day traders that are not long and are trying to short (sell) the S&P. One of MrTopStep’s sayings is that ‘The S&P is up too high to buy and too firm to sell.’ While that may be funny to some, or stupid to others, all we have to do is look back at the last quarter of 2015 and the first quarter of 2016. While we all know that things eclipsed on August 24, the retest of the 1804 low did not happen until January 20th. I can not speak for all traders, but the original sell off that started in the last week of July kept going until the end of August, but as the PitBull continued to say; there was unfinished business at the 1804 level and he kept wary of a retest. Despite the rally off 1804 that pushed the futures all the way up to 2075, there was just too much weakness in Asia and Europe to say the coast is clear. That came after the retest, and since then, the S&P futures have rallied over 270 handles, and with the exception a a few pull backs, the ES has gone straight up. It has been, as they say, a very one sided trade, and as the PitBull says the only guys making are the guys with the better seats.
Lets face it when volatility is up it may be scarier to trade, but there is more movement, and its not all in one direction. It has always been my thing to be honest about trading. I have never thought it was easy but I knew I could make money doing it. I also knew the guys trading for me could do it, but over the last few weeks, I have not been making money. I made money in the first quarter (January, February and March) and started out April positive, but in the last ten trading days I have made a little and lost more, giving back all the profits I was up on the month. The bond program we have was up over 35% year to date, but my friend that runs it got short the ES, and like many, is trying to average in a short ES position. Now we are sitting on a short position in the spoos (http://www.investopedia.com/terms/s/spoo.asp)and not trading the bonds. My other traders have gone cold also, so in addition to my daily losses, the other daily trading statements are not doing so well either.
So why are people not making money right now? It’s hard to say, but my feeling is that the programs, whether they be HFT or an algo program, are dominating the tape. The other part is that with the fed unable to raise interest rates, Europe pressing for more quantitative easing, and China devaluing its currency against the dollar, the easy money trade is back. We were all led to believe that when the fed finally decided to raise interest rates that they were removing the zero borrowing cost trade and that this would be a negative for the markets. It was, but now that the fed is locked down, and the markets have the same feel they did before the rate hike. Like cattle led to slaughter, we were all sold a bag of goods, and now that bag of goods looks like it was a giant head fake.
It’s 7:45 am and the ESM16 just traded up to 2079.00. I can’t say for sure the reason the markets are going up today is because of the fed inability to raise interest rates, but I can say the stats for the April options expiration are extremely friendly this week, and that the PitBulls Thursday friday low the week before the expiration worked like a charm!
In Asia, 10 out of 11 markets closed higher (Shanghai Comp +0.52%), and In Europe, 7 out of 12 markets are trading lower this morning (DAX +0.03%). Today’s economic calendar includes Weekly Bill Settlement, Consumer Price Index, Jobless Claims, Bloomberg Consumer Comfort Index, Dennis Lockhart Speaks, Jerome Powell Speaks, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 5-Yr TIPS Announcement, 30-Yr Bond Auction, Fed Balance Sheet, and Money Supply.
Our View: I said yesterday that the S&P’s were too high to buy and too firm to sell. As hard as it is to buy near the high tick that’s what is working as 3-5 handle pullbacks have been gifts for dip buyers the last few sessions. Currently the ESM is breaking above yesterday’s high, making a globex high of 2077.50. As hard as it is to buy a 270 handle rally, shorting this isn’t working either. At this point we were expecting some possible resistance at 2075, but beyond that, it now looks like 2100 is a magnet pulling price higher. Our view is to maintain a dip buying up approach up to 2100 until proven otherwise.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed higher: Shanghai Comp +0.51%, Hang Seng +0.85%, Nikkei +0.68%
- In Europe 7 out of 12 markets are trading lower: CAC -0.10%, DAX +0.03%, FTSE 0.07% at 6:30am CT
- Fair Value: S&P -6.34, NASDAQ -7.91, Dow -84.55
- Total Volume: 1.6mil ESM and 2.4k SPM traded
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