In only one of the last 26 sessions the S&P has moved more than 0.5%. How bullish can you be? With the Dow reaching 23000 for the first time ever yesterday, bullish sentiment is growing, but volumes are dropping. According to Bank of America (NYSE:BAC) Merrill Lynch’s latest survey, fund managers reduced wagers on a correction and took on more risk in October with a record number forecasting a ‘Goldilocks’ scenario for the world economy, and betting the record highs will continue. But it’s not just the U.S. markets that are raging. All three US benchmarks have hit new records in recent weeks, and so has the DAX and FTSE 100, while some Asian markets have hit new highs not seen in decades. After the stronger than expected September rally, the DAX posted its 3rd strongest September since 1965.
According to BofA Merrill, the balance of investors taking “above normal” risk has jumped to the highest level since March 2015, and is now in the top decimal of the historical range, while at the same time, complacency about a fall in the market has grown, with fewer investors taking out protection against a correction. The current bull market is 104 months old, having experienced only two pullbacks, which on both occasions were less than 20% in 2011 and 2015/2016. Since making its March 2009 low the DOW is up 255% and the S&P is up +270%. At the same time the world is awash in an estimated $230 trillion in debt, with $100 trillion since the 2007-2009 credit crisis.
Wow, what’s happened to the S&P 500 futures? Not much. The wild ride of the past and big volumes have disappeared. A combination of all the QE, historically low rates, and low VIX have taken what used to be one of the wildest and most volatile futures contract and turned it into one of the slowest futures markets on the board. There have been many ‘extended’ periods of the S&P 500 futures (ESZ17:CME) being slow, but in most cases it never stays like that for very long. This time the slowdown has lasted months, and there doesn’t seem to be an end in sight. It’s been so slow that there have not been any MrTopStep ‘10 handle rules’ in a while.
On Tuesday morning the ES traded 2547.75 on the open, traded up to 2556.25, sold off down to 2552.25 at 10:00 CT, and then rallied and double topped at the earlier high at 2556.25. The next move was back down below the vwap at 2553.50, and then down to 2552.50 at 12:35 CT. Around 2:25 CT the ES started moving back up as the MiM started showing $400 million for sale, and after the 2:45 NYSE imbalance showed MOC sell $263 million the ES shot up to 2557.75, retesting its prior contract high made on Tuesday.
In the end the S&P 500 futures (ESZ17:CME) settled at 2557.00, up +0.75 handles, or +0.02%; the Dow Jones futures (YMZ17:CBT) settled at 22951, up +53 points, or +0.23%; the Nasdaq 100 futures (NQZ17:CME) settled at 6123.75, up +3.50 points, or +0.05%; and the Russell 2000 (RTYZ17:CME) settled at 1499.40, down -6.00 points or -0.40% on the day.
While You Were Sleeping
Overnight, equity markets in Asia traded mixed, with a slight bias to the upside, with the Shanghai Comp leading the way closing up +0.28%. Meanwhile, in Europe, stocks are booming this morning, with every major index currently trading higher.
In the U.S., the S&P 500 futures opened last night’s globex session at 2556.50, and printed the low of 2556.25 almost immediately. From there, the ES piggy backed the strength overseas and began trading higher for the rest of the night. As of 7:20am CT, the ES is trading on its highs. The last print is 2561.75, up +4.75 handles, with 95k contracts traded.
In Asia, 6 out of 11 markets closed higher (Shanghai +0.28%), and in Europe 12 out of 12 markets are trading higher this morning (FTSE +0.35%).
Today’s economic calendar includes Housing Starts (8:30 AM ET) Atlanta Fed Business Inflation Expectations (10:00 AM ET), EIA Petroleum Status Report (10:30 AM ET), Beige Book (2:00 PM ET); Fedspeak — Stanley Fischer Speaks, William Dudley and Robert Kaplan speak (8:00 AM ET); Earnings — M&T Bank (NYSE:MTB) (6:40 a.m. ET), U.S. Bancorp (6:45 a.m. ET), Northern Trust (NASDAQ:NTRS) (7:30 a.m. ET), Abbott Laboratories (NYSE:ABT) (7:45 a.m. ET), American Express (NYSE:AXP) 4:01 p.m. ET), Alcoa (NYSE:AA) 4:03 p.m. ET), eBay (4:15 p.m. ET) United Continental (4:15 p.m. ET), United Rentals (4:15 p.m. ET).
The Trend Is Your Friend Until Further Notice
Our View: World debt is piling up, and the global stock markets keep making new highs. Are the markets going to sell off / crash at some point? They could, but I do not think it’s over yet, and the rally may continue for some time to come. Right now the trend is your friend until further notice. Our view remains unchanged; you can sell a gap higher open or the first 2 to 3 handle rally, or you can just kick back and buy the dip and hold till the close. Seems to me there is one quick play in the morning, then one late play buying it. You can take it from there.
