Last week, the S&P 500 futures rallied to open the week, but then broke down after making a 2068.50 high Monday. The ES traded weak Tues/Wed/Thurs, taking out the May 6th 2030.50 low and the April 2026.00 low, trading down to 2022 and making its lowest print since March 29. Going into Friday’s trade we were concerned about a weaker open leading to a sharp decline, however, we also considered a bus too full idea to the short side. The latter won as the ESM16 rallied higher to close up Friday by 11.75 handles, or .60%, to close out the expiration week pinned at the 2050.00 level in what was the highest volume week since mid March. The pattern continued; every time the spoos looked like they would roll over and open the door to serious selling buyers would step in, selling would dry up, and give way to a rally. As weak as the equity indexes seem at this point, and as much as the chart appears to show a price breakdown, buyers still continue to have their way as bears have proven very little, if anything, in the intermediate time frame.
This week will be the last full week of May, as the markets are closed next Monday for Memorial Day, then return for the end of the month trade on Tuesday. The calendar is a little busier this week featuring noticeable releases everyday after Monday. Going into the end of the month it’s almost like deja vu from a year ago as price appears to be stalled from going higher heading into the holiday. The statistics surrounding Memorial Day tend to show weakness this week followed by higher prices post holiday. The stats from post option expiration into the end of the month also suggest weakness over the next few sessions. However, for bears to continue to sell they will have to create some real momentum and do something they have not done since the February 11 low; cause the bulls to become afraid, and smoke out the dip buyers with some serious selling. Will the weak statistics and economic calendar be enough to do it? If so, then bears will need to chase the index down to the 2000 level then push below down to 1950, and it seems that going into this time of the year there lacks enough energy for buyers or sellers to take control of the wheel. While we believe lower prices are coming, they probably won’t occur until later in the Summer.
Overnight, the worldwide equity markets traded mixed to lower with very modest moves, and the ESM16 played the old game of taking out sell stops, then running the buy stops before moving back lower. After the Euro open the futures traded to a 2043.50 low before rallying 12.5 handles up to 2056.00 in just over an hour, then within two hours later had virtually retraced all that move, and is currently trading at 2048.00, down 2 handles at 6:20 am cst. Volume has up ticked only slightly and is looking to hit 175K before 6:30 am cst.
Heading into today’s cash open the S&P futures appear to remain in a two sided market. I was telling someone yesterday that it is difficult to trade this market with conviction as bulls and bears are both finding their stops run on a daily basis. The logical trade is to trade with an open mind from both sides while taking an early profit and trying to let a runner move. Since the May 9 2079.00 print, the index has maintained a series of lower highs, and it appears that last night’s 2056.00 print could be a continuation of that pattern. Therefore, if sellers follow through on today’s bar, then we have to expect the 2022 low to be tested and taken out at some point this week.
Today, for the most part, we will be looking at the range that was given to us overnight. Should the S&P remain above the open, then the globex high is going to be the target, and should offer resistance on first touch. However, if there is a bounce above, then the index should be able to target 2065.00. Below the open the globex low will be targeted. We are hesitant to buy the initial touch knowing that a break of 2040.00 likely opens the door for a move 20 handles lower.
In Asia, 6 out of 11 markets closed higher (Shanghai +0.64%), and In Europe, 8 out of 12 markets are trading lower this morning (DAX -0.72%). This week’s economic calendar features 21 economic reports, 7 Fed speakers and 13 U.S. Treasury events. Today’s economic calendar includes James Bullard Speaking, John C. Williams Speaks, PMI Manufacturing Index Flash, 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction, and Patrick Harker Speaks.
Our view: A lot of Fed speak this morning had already moved headlines but the equity futures are still quiet. Today’s calendar features PMI Manufacturing Index, but unless there is an unreasonable surprise, then it is not expected to be a market mover. It’s 7:25 cst and the globex volume is under 200K. It looks like it will be a typical quiet Monday with tight range. We are watching the edges from the globex session as possible clues. Our call is with the ‘up a day – down a day’ type price action to buy early weakness, or sell early strength, as mean reversion strategies seem to be what is working until this market clearly begins to trend.
- E-mini S&P 5001986.25-12.00 - -0.60%
- Crude Oil
- 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