Expectations were not very high on the last trading day of the first quarter. On Friday, the S&P 500 futures reversed lower when the first quarter rebalance ‘swung’ to the sell side, pushing the futures down to new daily lows of 2357.75 on the close. That selling (buy bonds / sell S&Ps) reappeared during the first half of Mondays trade.
The (ESM17:CME) opened at 2359.25 on the 8:30 ct time open, initially upticked to 2361.75, and then got slammed as the bonds traded above 152.10. The S&P 500 futures dropped down to 2340.00, down 18.75 handles on the day. The PitBull said he had seen this pattern before. He said when the funds rebalance hard on the close there is usually some residual selling leftover for Monday, and that’s exactly what happened.
As the selling rolled in, the (ESM17:CME) hit several air pockets that were filled with sell stops. After some weak economic releases the futures opened lower but when the mutual funds started dumping consumer discretionary stocks the sell programs poured in.
3 Parts To The Trading Day
One of the big things electronic trading has enhanced is the ability to trade 24 hours a day. Clearly, there are two sessions. The first is the day session, and the second is Globex, but we also think there is a third session, and that happens after the ES makes its midday low and starts moving back up. Yesterday was a perfect example of what we call the ‘three parts to the trading day’.
Part 1) What happens on Globex, or the overnight session.
Part 2) What happens after the 8:30 futures open.
Part 3) What happens when the guys with the better seats show up after 1:00 CT.
Yesterday, I tried to stick with the the overall pattern of selling off early and got run over buying the early dips. I was early, but what I was trying to do is ‘catch an early low’ and try and hold for Part 3. The ESM made its low at 10:58 CT, rallied up to the 2351.00 area, sold back off, and double bottomed at 2345.50. From there the futures blasted up to 2356.50 going into the 3:15 futures close. In the end there was something for everyone. An early 19.25 handle drop and a 17.50 handle pop.
At the end of the first day of the new quarter, the Dow Jones futures (YMM:CME) futures closed down 19 points, or less than 0.1%, to 20,580. The S&P 500 futures (ESM17:CME), which on Friday had closed its best quarter since 2015, fell 3.00 points, or 0.2%, to 2354.50, while the Nasdaq 100 futures lost 2.50 points, or 0.3%, to 5433.25.
While You Were Sleeping
Overnight, several Asian markets were closed, with the Nikkei being the only major that was open as it lead the majority of open markets lower. Europe followed with a mixed and choppy session as prices were leaning to the red. In the U.S., the S&P 500 futures opened globex at 2354.25 and made an early high at 2355.50 before tracking lower for much of the night. The futures pushed to a low of 2347.25 early in the Euro session and then bounced back up to 2351.75. As of 5:42 am cst the overnight volume is 100k and last printed of 2351.25, down 4.75 handles on the session.
In Asia, 4 out of 7 open markets closed lower (Nikkei -0.91%), and in Europe 8 out of 11 markets are trading lower this morning (FTSE +0.34%). Today’s economic calendar includes International Trade, Gallup US ECI, Redbook, Factory Orders, a 4-Week Bill Auction, and Daniel Tarullo Speaks.
Welcome To TurnAround Tuesday
Our View: Things seem to be a little unsettled. Like there is still some unfinished business on the downside. I can’t speak for you, but I think people are nervous. The markets are up so much since Brexit and the U.S. election, and I just do not think the stock market can keep going straight up. Yes, the S&P had an 83 handle sell off, but that decline ended with with a big two day rally.
That said, today is TurnAround Tuesday, and with so much selling on the last day of the quarter and the first trading day of the second quarter, there has to be some two way flow. There has to be some buying to do on the first few days of the new quarter. Our view; we lean to buying weakness with tight sell stops. Lots of buy stops building up above 2358.70 up to 2363-2365.00.
PitBull: CLK osc 27/-15 turns down on a close below 5102 ESM osc 14/-5 turns down on a close below 237083 VIX osc -3/1 turns down on a close below 1087.
As always, please use protective buy and sell stops when trading futures and options.