After making new record highs on Wednesday the Asian and European markets tumbled, 7 out of 11 Asian markets closed lower and 12 out of 12 European markets were all trading lower. Spain’s Catalina issues sparked part of the decline in Europe, with weak Apple (NASDAQ:AAPL) iPhone 8 sales, and concerns about President Trumps tax plan failing all weighing in on the S&P. Zero hedge called it a ‘synchronized global sell off’. I think it was a long overdue news related ‘stop run’.
While the S&P did trade down to 2542.50 at 3:00 am CT, the ES traded back up to 2551.50 at 5:07 am, and then made a higher low at 2544.25 at 6:15 am. On the 8:30 CT futures open the (ESZ17:CME) traded 2550.25, shot up to 2554.75 in the first 5 minutes of trade, and then sold back off and made another higher low at 2545.25 at 9:10 am CT. The next move pushed the ES all the way back up to 2551.25, 2554.50, and then up to 2557.75 around 1:00.
Here is what I think happened, and while it may not be the entire reason for the push back up, I think it was a good part of why the ES rallied 16 handles off its Globex low, and almost 13 off its day session low. There were were 350,000 ES traded on Globex before the 8:30 CT futures open. With all the talk about ‘crashes’, the 30 year anniversary of the 1987 crash, and weak overseas markets, the bears lost their cool. From the little retail trader to some of brightest on Wall Street calling for a correction / crash, traders get way ahead of themselves, and as the index futures tumbled, traders / investors sold short. With over 3x the daily globex volume, what it told me is that people got short at low prices and put in buy stops. With the algos already doing a big downside stop run, the very same algos chased the shorts / upside buy stops. In other words, they blew the longs out, and then they blew the shorts out.
No Harm / No Foul
After 1:00 the ES continued to climb. Like most recent trading days, the MiM started showing decent size for sale, but the futures continued to climb, trading all the way up to 2551.50 on the 3:15 futures close.
What can you say? The markets just do not want to go down, and when they do they come snapping right back. The S&P 500 hasn’t had a daily drop of 1% or more in two months, while the VIX fell to its lowest reading in over 20 years this month. Volume on the NYSE is down 12% this year, and down 22% from 2016. The CME Group’s S&P 500 futures volume has fallen off a cliff. A few years ago it was doing 1.4 million to 1.6 million contracts or more, and recently has fallen under 800,000 contracts a day including overnight Globex volume. Clearly the higher the markets go the less volume there is.
In the end after a big drop overnight the S&P 500 futures (ESZ17:CME) settled at 2560.50, up +0.50 handles, or +0.01%; the Dow Jones futures (YMZ17:CBT) settled at 23114, unchanged on the day; the Nasdaq 100 futures (NQZ17:CME) settled at 6097.75, down -21.50 points, or -0.35%; and the Russell 2000 (RTYZ17:CME) settled at 1502.90, down -3.50 points or -0.23% on the day.
While You Were Sleeping
Overnight, equity markets in Asia and Europe traded higher across the board, as stocks look to once again close out the week on a high note.
In the U.S., the S&P 500 futures opened last night’s globex session at 2561.00, and traded in a 2 handle range until 8:30pm CT. As Asian markets opened, the ES shot up to 2571.75, which would ultimately hold as the overnight high. The ES has since leveled off, and as of 7:15am CT, the last print is 2565.75, up +5.25 handles, with 202k contracts traded.
In Asia, 10 out of 11 markets closed higher (Shanghai +0.28%), and in Europe 12 out of 12 markets are trading higher this morning (FTSE +0.30%).
Today’s economic calendar includes Existing Home Sales (10:00 AM ET), Baker-Hughes Rig Count (1:00 PM ET); Fedspeak — Janet Yellen Speaks, Loretta Mester Speaks (2:00 PM ET); SunTrust Banks (NYSE:STI) (6:00 a.m. ET), General Electric (NYSE:GE) (6:30 a.m. ET), Synchrony Financial (6:30 a.m. ET); Procter & Gamble (6:55-7:00 a.m. ET), Schlumberger (7:00 a.m. ET), Citizens Financial (7:30 a.m. ET).
S&P Tightest Monthly Range Since January 2007
Our View: The S&P 500 is on pace for its tightest monthly trading range since January 2007. Its hard to believe that one of the worlds most active and volatile futures markets has turned into one of the quietest. If you are long, there is no reason to sell. If you are in cash, you are probably too scared to jump in at such high levels without any pullbacks. Our view is for higher prices. Like I have been saying for weeks, you can sell the gap up opens or the first rally above, or just be patient and buy the dip. 2568-2570 on TAP.
