Yesterday we saw an early morning S&P 500 futures ‘head fake’. For most of Monday night’s Globex session the (ESH17:CME) was trading higher before the U.S. open, but as the 8:30 ct futures open neared, the futures sold off to down 2362.75. From there, the ES pushed down to 2361.00, looking weak on the open. However, about 10 minutes into the session, and just after the low was made, there were 5 buy imbalances showing over 10,000 ESH17’s bought. After a little back and filling at the 2363.00 area, the futures pushed to 2368. There was one last dip and down to 2364.00, and then in came a big 12:00 buy program that began pushing the S&P futures to a new all time/contract high at 2370.75.
Over the last few days, I have been questioning the idea of either selling the Trump State of the Union address, or being short going into it. If you are following the overall pattern of making a new high, and then trading sideways into a low volume pull back, I just do not see any change that would dictate a medium to large pull back right now. That doesn’t mean the ES can’t drop 30 or 50 handles, but when was the last time we saw that type of drop?
There has not been a -1% down day in the ES in 93 trading days, and what I have been asking is, what if President Trump doesn’t disappoint, but instead actually does a great job? Are you supposed to sell the S&P then? Or are you only supposed to sell the ES if he doesn’t come through as ‘expected’? What has happened is that everything is event driven. These events usually cause small bumps in the road, and then the index markets go on to make new highs. Will the State of the Union be a case to sell the news, and if so, what should traders expect if the ES does sell off?
Some levels to watch: 2348 to 2351, the 2320 area, and below that down to the 2308 to 2300 level. On the upside 2376, 2385 to 2390 and then up to 2408 to 2410.
To tell the truth, I do not know for sure what the ES is going to do, but ‘patterns fitting’, there should be a small pullback and then on to new highs. I do not disagree that the ES, NQ, YM and TF are over extended and extremely overbought, but I also know that doesn’t seem to matter. With the VIX trading down to 11.53 yesterday, two things are clear; 1) Extreme complacency, and 2) The market doesn’t expect any swings on tonight’s speech from DJT.
While You Were Sleeping
Overnight global stock markets were very choppy and mixed. The S&P 500 futures have traded in a narrow range between 2365.50 and 2368.75, a 3.25 handle range, and as of 5:37 am cst has last printed 2368.00, down a tick on the day, with volume at 92k.
In Asia, 5 out of 10 open markets closed lower (Shanghai +0.40%), and in Europe 6 out of 11 markets are trading lower this morning (DAX -0.13%). Today’s economic calendar includes a 2-Yr Note Settlement, a 5-Yr Note Settlement, a 7-Yr Note Settlement, a 30-Yr TIPS Settlement, GDP, International Trade in Goods, Redbook, S&P Corelogic Case-Shiller HPI, Chicago PMI, Consumer Confidence, Richmond Fed Manufacturing Index, State Street Investor Confidence Index, a 4-Week Bill Auction, a 52-Week Bill Auction, Esther George Speaks, Patrick Harker Speaks, Farm Prices, John Williams Speaks, and James Bullard Speaks.
Barclays (LON:BARC) Fed Speaker & Calendar Preview
San Francisco Fed President Williams (FOMC non-voter) speaks: Williams has long been one of the more hawkish members of the FOMC. We expect him to call for two to three rate hikes. In addition, we expect him to advocate for balance sheet normalization, as he likely remains uncomfortable with the size of the Fed’s asset holdings.
St. Louis Fed President Bullard (FOMC non-voter) speaks: Bullard maintains his state-space view of the world, in which he will not take a stand on the future path of policy. His model calls for a single rate hike in 2017.
Event Time: State of the Union Address at 8:00 CT
Our View: The bears can run, but they can’t hide. The ESH17 has been up 12 out of the last 13 Sessions, and even when the futures do sell off intraday, they always come roaring back at the end of the day.
Can you believe it? Today is the last day of February… See how time flies when you’re having fun? Overnight the ES traded up to 2368.25, falling short of the 2370.75 new contract high made yesterday. The speech is scheduled for 8:00 CT tonight, but part of the speech has already been ‘leaked’.
It’s7:05 and the (ESH17:CME) just traded down to 2365.25, total Globex volume is 130,000. I get the feeling the day session may see an increase in volatility. That said, our view is that we could see some early selling, and once that exhausts, the ES should bounce. I really want to take a wait and see approach, and get a look at the price action. Remember, the ES has gone a long way, but that doesn’t mean there won’t be some type of ‘dip and rip’.
As always, please use protective buy and sell stops when trading futures and options.