There was a lot of concern that the S&P futures had gotten ahead of itself with the Shanghai Composite going back online after the Chinese Lunar New Year holiday, and while the Nikkei fell over 11% last week, its largest monthly drop since 2008. The expected weakness was offset by a +7.2% rally in the Nikkei. The dollar/yen (USDJPY) closed up +0.77% versus the US dollar. Many traders are were already saying they thought stocks had bottomed last Friday after equities moved higher in Europe, an improvement in the US retail sales number and a jump in oil prices seems to help push some of the dark clouds that have been hanging over the markets away.
The S&P futures (ESH16) that made a pit low off 1822.50 stormed higher during Friday’s trade. After some ‘back and fill at the 1846-1848 level the ESH traded above the 1850 level and made a high at 1860.75. In the MrTopStep forum I said the futures could trade up to 1860.00 and I was off by 0.75 points (handles). During Sunday night’s Globex session the ESH started moving higher as the Nikkei and U.S. dollar rallied with the S&P trading all the way up to 1898.00. Total volume during the abbreviated session at 8:00 CT Monday morning was 245,000 contracts traded.
Despite the shortened holiday week there is an exceptionally busy economic calendar that includes some housing numbers and a high level of Fed speak. From Thursday’s low to Sunday nights globex high the ESH16 has rallied a total of 87.50 handles in less than 40 hours of trading. Yes, crude oil has bounced and the S&P has rallied but there are still a lot of uncertainties surrounding the S&P and the global markets. If there was one thing I could say its that while the S&P has rallied I still think it’s too early in the year to say ‘the low is in’.
In Asia 10 out of 11 markets closed higher (Nikkei +7.16%), and In Europe 12 out of 12 markets are trading sharply higher this morning (DAX +3% at 8:00 am CT). This week’s economic calendar includes 20 economic reports, 4 Treasury settlements, 6 Treasury announcements, 4 Treasury auctions, and 6 Fed speakers. Today’s economic calendar includes a 3-Yr Note Settlement, 10-Yr Note Settlement, 30-Yr Bond Settlement, Empire State Mfg Survey, Patrick Harker Speaks, Housing Market Index, Neel Kashkari Speaks, 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction, Treasury International Capital, Eric Rosengren Speaks
Nikkei +7.17%
Our View: The S&P has rallied and should continue higher but I do not think all the bad has just disappeared. Today the ESH16 closes at 12:15 CT. It’s my guess that there is still room on the upside. The buy stops in the ES go all the way up to 1924. Our view is to sell the early rallies and buy weakness. Not sure how many people will be playing but that doesn’t mean the ES won’t be moving.
As always, please use protective buy and sell stops when trading futures and options.
Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group (O:CME) since 1985.