The S&P 500 futures acted weak and traded lower on Monday’s close.
After trading down to 2022.00 last Thursday, the ESM, which closed lower 6 out of the last 9 sessions, came to life on the upside yesterday. At 11:45 CT the ESM was up 1.28% at 2071.50.
The Dow Jones futures were up 224 points at 17677.00, or up 1.18%, and the Nasdaq futures were trading 4,005.25, up over +1.3%.
The talking heads on CNBC said the rally was due to the Federal Reserve not being able to hike rates in June, but we think the real reasons for the S&P going up is threefold. The first part is that the S&P's trading range is still intact. The second part is one of MrTopStep’s trading rules: it takes days and weeks to knock the S&P down and only one to bring it back. The last part is everyone being off base.
Going into 2:30 CT, the S&P futures traded up to 2077.26, and not long after there were 13 ES sell imbalances totaling over 10,000 sold.
Early in the day it was one buy imbalance after another, and at 2:30 CT the sellers showed up in force. It clearly looked like the buyers lightened up late in the day after trading down to 2073.75, just 3 points off the high.
That was pretty much the theme all day, make a new high and hold off, drop one or two points, then rally. The index grinded higher on 1.4 million contracts traded and closed just a couple handles from the 2079.50 May high.
Overnight, equity markets worldwide traded risk off, following the S&P 500’s lead from Tuesday. The S&P futures climbed higher in globex, taking out the monthly high and printing 2085.50, up 45 handles from the prior day's globex low, and up 63 handles from last Thursday’s low.
The volume was absent overnight but it clearly doesn’t matter for now. As we said earlier this week, the low volume favors this kind of trade, and since last year the volume dries up above 2050.
Currently the ESM is trading at 2083.00 up 8.00 handles, and is 22 handles from this year’s high and just over 50 handles, or 2.5%, from new all time highs.
Heading into today’s cash open, the calendar is a little more active, but doesn’t include anything that will likely be market moving. It’s difficult to fight this from the short side, so at the moment we are not going to look at the resistance side, as the market is in dip buying mode.
We will look at the 2075 area to buy a dip and try to hold it as long as possible. That’s 10 handles below the globex high and at the top of yesterday’s range. There may be other smaller pullbacks we will look to buy during the day, but as the markets get closer to the holiday, the activity is going to lighten and the fades are going to become increasingly difficult.
In Asia, 10 out of 11 markets closed higher (Shanghai -0.23%), and In Europe, 11 out of 11 markets are trading higher this morning (DAX +1.25%). Today’s economic calendar includes Bank Reserve Settlement, MBA Mortgage Applications, International Trade in Goods, FHFA House Price Index, PMI Services Flash, EIA Petroleum Status Report, Robert Kaplan Speaks, 2-Yr FRN Note Auction, and a 5-Yr Note Auction.
Our view: When I went on the MrTopStep Periscope on Monday’s close and told people I thought the next 50 handles were going to be up I thought I may have jumped the gun. Then when the ESM gapped 11.25 handles higher on the 8:30 CT open and buyers showed up, I had a feeling it could be a trend day up, and that is exactly what it was.
Yes, maybe the talk about no rate hikes in June helped push buyers back into stocks, but the real deal is that nothing has changed. Sell the ES off, get people short, run a load of sell stops down to 2022 and then squeeze out the shorts.
Our view is for more of the same. As the the volumes drop going into the 3 day weekend the ESM will / is reacting in kind, higher prices. Sell the rallies and buy weakness, or just buy weakness.
- E-mini S&P 500 1986.25-12.00 - -0.60%
- Crude
- Shanghai Composite
- Hang Seng 19694.33-132.08 - -0.67%
- Nikkei 225 16646.66+1.97 - +0.01%
- DAX 9823.54-119.69 - -1.20%
- FTSE 1006102.75-63.05 - -1.02%
- Euro 1.1216