Maybe, just maybe, the stock market will sell off sometime. But, as my good friend and fellow trader Tony LaPorta said, “If the markets keep heating up the Fed could be forced to start pushing rates higher at a faster rate, who says they can’t go .50 basis points, or more?” I’m not kissing ass, but I have always liked Tony, not just as a floor trader, or a ‘guy’ from the CME floor, but because he was able to take the knowledge, turn it into his own methodology, and make money. He is one of the 3% that actually lives and pays his bill off his trading account. Nowadays, my friends, that is an accomplishment in anyone’s book.
Tony also praised me, and said that I was the one that taught him the old saying about ‘not fighting city hall,’ and ‘if the markets are going up we want to go for the ride.’ Lastly, he commented on the 90/90/90 rule (90% of retail traders lose 90% of their money in 90 days), and then he said that the only way to win is to go back to the basic trading rules, and abide by them. Thanks Tony.
As for yesterday, the ESH17 was slightly weak during the night session, rallied a little, and then sold off down to new daily lows at 2342.75. Again, the ES rallied and sold off, making new daily lows at 2336.75, the first 15 handle pullback all month. After that the futures did the old sideways trade, and then the guys with the better seats showed up, pushing the ESH17 up to the 2347.25 level going into the close.
For over 80% of the day session, the S&P futures price action was one of failed rallies, then the futures popped 8 handles in the final 90 minutes. Why? Because there are 47,000 February 2350 spx calls that expire on the open, which could easily be exercised. There is still lots of risk around.
Looking at Presidents Day Stats
Don’t forget that today’s close begins a three day weekend, as the NYSE is closed on Monday for Presidents Day. With the help of Stock Traders Almanac, we started looking at the stats for market performance surrounding this holiday, and found that it has the worst track record of all market holiday’s. However, since 2011, the track record has improved a little.
While You Were Sleeping
Overnight, stock markets in Asia were mostly lower, followed by Europe, where all markets are currently lower, with the exception of the FTSE. The S&P 500 futures showed some weakness as well. The ESH17 opened globex at 2345.00 and made an early high in the Asian session at 2347.50 before dropping 10.50 handles down to 2337.00. Since the, the futures have seen some bounce, last trading at 2340.25, down 5.25 handles, on volume of 112k as of 5:52 am cst.
In Asia, 8 out of 11 markets closed lower (Shanghai -0.85%), and in Europe 10 out of 11 markets are trading lower this morning (DAX -0.33%). Today’s economic calendar includes E-Commerce Retail Sales, Leading Indicators, the Baker-Hughes Rig Count, and Loretta Mester Speaks on Sunday.
Our View
The S&P cash study for the February options expiration shows today being the weakest trading day of the week; up 14 / down 19 of the last 33 occasions. It’s 7:25 am and the ES just dropped down to 2335.50. Yesterday, I said that with the future’s going up so much this week, it was more than likely most of the option positions were forced to roll early, relieving some of the buying pressure. There are a lot of stories floating around about the short options fund, you may want to read this…
Additionally, the first trading day after the holiday is also weak; up 15 / down 18 of the last 33 occasions. When the ES is down on globex before the 8:30 open, there is always a short covering rally. It’s my guess that the futures make an initial move, and you’re probably supposed to fade it. The expirations are usually busy in the first and final hour, and with the exchange closed on Monday, my gut tells me it could end up a choppy, slow day. You can take it from there.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower: Shanghai Comp -0.85%, Hang Seng -0.31%, Nikkei -0.58%
- In Europe 10 out of 11 markets are trading lower: CAC -0.83%, DAX -0.33%, FTSE +0.19% at 6:00am ET
- Fair Value: S&P -1.82 NASDAQ +1.93, Dow -22.00
- Total Volume: 1.7m ESH and 3.8k SPH traded