There has been a big disconnect recently between the S&P 500 futures (ESM17:CME) and crude oil futures (CLM:NYM). While the (ESM17:CME), (YMM17:CBT) and the (NQM17:CME) raced to new highs last week, that was not the case for crude oil futures prices, which fell 6.3% to $46.22 a barrel. Crude Oil traded as low as $43.76, and then dropped another $1.03, or 2.10%, Monday before recovering slightly late in the day to unchanged. Oil futures touched their lowest levels since November, with most of the drop coming after Wednesday’s API data, which showed a smaller-than-expected fall in U.S. oil inventories and rising production.
Shown below is a chart of crude oil futures, which made a high of $53.76 on April 12th, and has since traded down to $43.76, a perfect 10 handle drop in less than a month. Over the last 20 sessions crude is down $6.65, or 11.5%.
Meanwhile, shown below is a chart of the S&P 500 futures, which is up 40.50 handles, or 1.85%, over the last 20 sessions, and reached new all time highs yesterday.
Yesterday, after gapping higher on globex and running to new all time highs before selling into the open, the S&P 500 futures opened the regular session at 2395.75, down two handles. The ES traded its high of the day on the open at 2397.75, before selling off for much of the morning, down to 2389.75, and completing a 8 handle range. From there the futures pushed higher into the afternoon, printing up to 2395.50, pretty much recovering the open, before settling at 2395.00, on another day that missed one million total mini’s traded.
While You Were Sleeping
Overnight, equity markets in Asia were mostly quiet and mixed, followed by Europe where all the majors are trading modestly to moderately higher. In the U.S. the S&P 500 futures opened globex at 2394.50 and printed a low of 2393.00 early after the Tokyo open. The ESM pushed up to 2396.50 early in the European session, completing just a 3.5 handle overnight range, and has since popped up to 2398.75. As of 7:30am cst, the last print in the futures is 2398.50, up 3.5 handles, with just over 100k contracts traded.
In Asia, 6 out of 11 markets closed lower (Nikkei -0.26%), and in Europe 11 out of 12 markets are trading higher this morning (DAX +0.55%). Today’s economic calendar includes NFIB Small Business Optimism Index, Redbook, JOLTS, Wholesale Trade, a 4-Week Bill Auction, Eric Rosengren Speaks, a 3-Yr Note Auction, and Robert Kaplan Speaks.
Our View
Volume was again under one million contracts yesterday, and given the quiet overnight session, combined with the light calendar today, our view is for more of the same thin-to-win type price action. Dip buyers are being rewarded, as the path of less resistance looks higher right now, with the S&P’s looking to push to make its first ever close above 2400.
Our call remains the same, you can sell the midday rallies, or just go with the trend and buy weakness. As the volume gets lighter, the ranges get smaller, and waiting for 10 handle pullbacks may keep you out of trades. Buying 7-8 handle pullbacks, holding, setting your limit and walking away, is probably the most sane thing to do right now. Sure, the S&P will drop 10-15 handles at some point, but in this environment, calling tops becomes almost futile.
