The lackluster trade from Sunday nights Globex session spilled over into Monday’s regular day session. Going into the 8:30am CT cash open, the ESU had been held to just a 5 handle range overnight, with only 130k contracts traded. When the bell rang, the S&P 500 futures (ESU17:CME) opened at 2455.75, down -0.25 handle, and the Nasdaq 100 futures (NQU17:CME) opened at 5845.75, up +2.50 points.
The globex low at 2454.00 was tested right on the open, but never it was never breached, then a run up to test the 2459.00 globex high started. At 10:00 CT, the ESU was trading on its highs, but the overnight range had only been extended by one handle, and total volume was a total joke.
While that was happening, the NQ took a tumble from its high at 5863.75 down to a new low at 5835.75. It wasn’t until after 10:30 that the S&P’s finally caught wind of the weakness in the Nasdaq and broke down to 2456.25. There wasn’t enough selling power to sustain another leg lower, and the ES began drifting back towards the highs.
At 12:15, after trading in a 4 handle range for over 3 hours, the ESU made another new high by just 2 ticks. From there, while the Nasdaq was trading higher, the S&P’s continued to drift sideways for the rest of the day.
In the end, the S&P 500 futures (ESU17:CME) settled at 2458.50, up +2.5 handles, or +0.10%, the Dow Jones futures (YMU17:CBT) settled at 21581, down -14 points, or down -0.06%, and the Nasdaq 100 futures (NQU17:CME) settled at 5855.00, up +11.75 points, or +0.20%.
Bus Too Full
There just wasn’t any volume in there yesterday to get any type of movement… On the 3:15 close, only 840k contracts had traded. When you subtract 130k from Globex, then another 70% for algo and hft programs, you’re only left with 213k contracts traded in the day session. That’s pretty low.
I know that trying to pick tops in this market is a dangerous game, I said so in last Thursday’s opening print, but I think that the bus is too full, and a pullback is due. The lack of volume speaks for itself, and when you have these thin-to-win type rallies, it gets harder to stay long. To take it a step further, when the market hasn’t given you the opportunity to buy a decent pullback, you end up trying to buy on the highs… This is another dangerous game. When it’s too high to buy, and too firm to sell, but volume is diminishing, a reversal can seem inevitable.
While You Were Sleeping
Overnight, equity markets in Asia traded mixed, with a slight bias to upside. Meanwhile, in Europe, most equity markets are trading lower this morning. In the U.S., the S&P 500 futures opened last nights Globex session at 2459.25, and traded in a 6 handle range all night. The low at 2454.25 was made at around 10:40pm CT, and was never really re-tested. Resistance was found at yesterday’s high of 2460.50, which has held as the high since 3:30am. As of 7:15am, the last print in the ES is 2456.50, down -2.00 handles, with 130k contracts traded.
In Asia, 6 out of 11 markets closed higher (Shanghai +0.33%), and in Europe 10 out of 12 markets are trading lower this morning (FTSE -0.05%). Today’s economic calendar includes Import and Export Prices, Redbook, Housing Market Index, a 4-Week Bill Auction, a 52-Week Bill Auction, and Treasury International Capital.
Our View
“Mutual Fund Monday” was higher, although modestly, and “Turn Around Tuesday” has been moderately weak in recent months. While we don’t want to get in the way of this higher price action, we realize that without any injections of unexpected momentum to the upside, that it’s difficult for buyers to come in right now. With our bias toward buying the dips, our hope is for some weakness to buy, and today may be the best shot.
During this type of price action, dip buyers have to be more aggressive at times, the 10-20 handle pullbacks are hard to come by, especially for intraday traders. 10 handles from the current all time high would be 2151.25, which is just a tick below the prior all time high. We think this level will hold on first touch. Below that is Friday’s 2445.75 open, and the 2444.25 low to lean on for support.
This type of price action usually comes with the “water in the bathtub” effect. So if you’re short, we suggest doing so after the late morning rally, while buying the early weakness.
