Wednesday's long squeeze quickly became the Thursday/Friday short squeeze
Although in the heat of the moment on Wednesday morning, most online and TV chatter suggested the capitulation had yet to come, it seems it already had. The ES has rebounded nearly 100 points from Wednesday's lows and crude oil has bounced nearly $5.00 per barrel. It is unfortunate that margin calls, and fear, likely left a handful of bulls watching the recovery from the sidelines after they had realizing massive loses. Unfortunately, when volatility picks up, so do these types of stories.
Although this type of stop loss running and squeezing out the weak hands has always been a part of the financial and commodity markets, I would argue that computerized trading has increased the frequency of exaggerated moves. In the same manner natural gas futures traded well beyond reasonable fundamentals for three for four days in December prior to a quick snap back rally, we saw the same nonsense in oil and, therefore, equities.
If it weren't for the no crying in commodities rule, we might have shed a tear. Luckily most clients were able to ride the storm with most positions in tact...and at least for today, the S&P 500, crude oil, and the 10-Year note is all moving our way.
Treasury Futures Markets
Treasuries aren't quite the safe-haven target they used to be
Although we clearly saw a significant amount of safety buying in bonds and notes this week, it wasn't nearly as dramatic as it could have been. In fact, Treasuries barely budged during the first 100 point drop in the S&P. Likewise, gold futures failed to put together much more than a dead-cat bounce.
It is clear investors are finding more comfort in cash, than other traditional safe-haven assets. Additionally, it suggests much of the selling in stocks, and even crude oil, was margin call liquidation. Further, it was likely force liquidation by margin clerks. After all, those exiting the market at the hands of a margin/capital shortage aren't looking to reallocate. They are looking for the nearest watering hole.
Treasury Futures Market Analysis
**Bond Futures Market Consensus:** The path of least resistance should be lower for Treasuries, but don't forget the Fed is on tap.
**Technical Support:** ZB : 157'14, 155'26, 152'30, 151'11, and 150'10 ZN: 126'31, 126'10, 125'15 and 124'16
**Technical Resistance:** ZB : 161'19 and 163 ZN: 128'30, 129'15, and 129'28
Stock Index Futures
Position puking and panic, it's what bottoms are made of
It is certainly too soon to know if Wednesday's plunge will turn out to be "THE" bottom, but if I was a betting woman I'd place a wager that it was. It is astonishing to hear the overwhelming bearish chatter in the face of a 100 rally from the low two days ago. The naysayers claim this is nothing more than a short squeeze, or an oversold bounce. But the truth is, that is how all rallies start.
At first the buying is largely in the hands of the bears taking profits, next buying comes from the bears who sold at bad prices scrambling to exit, then comes the bulls who liquidated long positions in a panic on the lows; only then will the real sustainable buying come in. In our estimation, we are in the latter stages of the short squeeze, and if we get follow through buying next week we'll start to see the same panicked investors who sold near 1800 buying to get in in the mid-1900s (painful to imagine, isn't it?).
Keep in mind, this was the first positive Friday close since December 4th. Breaking the habits of the bears can go a long way toward the recovery of a bull market. Things are looking up!
With all of this chaos, we almost forgot about next week's Fed meeting. The markets have a tendency to rally into Fed meetings, so that gives us another day or two of potential buying. Further, we doubt the Fed will want to ruffle feathers, they are probably going to taper expectations regarding the frequency of future rate hikes. If so, we could be pushing 2000 in no time. If they disappoint, the next stopping place would be about 1770. Yikes!
Stock Index Futures Market Ideas
**e-mini S&P Futures Market Consensus:** A break above 1906 is bullish, and will put the squeeze on. We believe this is the most likely scenario.
**Technical Support:** 1831, 1803, and 1775
**Technical Resistance:** 1906, 1947, 1979
e-mini S&P Futures Day Trading Ideas
**These are counter-trend entry ideas, the more distant the level the more reliable but the less likely to get filled**
ES Day Trade Sell Levels: Let's see what Monday looks like
ES Day Trade Buy Levels: Let's see what Monday looks like
In other commodity futures and options markets....
November 24 - Roll long December corn into March to avoid delivery.
January 7 - Sell April crude oil 26.00 puts near 41 cents ($410).
January 8 - Sell Feb e-mini S&P 500 1700 puts for about 8.00 to 8.50 ($400 to $425).
January 14 - Sell March 10-year note 129.50 calls for about 19 ticks, or $300.
January 20 - Roll the Feb 1700 put into a March 1600 put for even money to lower risk and margin.
January 20 - Roll the April crude oil 26 put into the May 23 put to lower risk and margin.
**There is substantial risk of loss in trading futures and options.**
These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.