The S&P rallied after the Crimean/Russian vote Sunday night and during Monday’s session. At the end of Monday’s trade the S&P closed up 0.96%, the Dow closed up +1.13% and the Nasdaq Composite closed up +0.81%.
We have a rule at MrTopStep that it takes days and weeks to knock the S&P down and only one to bring it back, and while the S&P (CME:SPM14) did not make back all of the 1.98% loss from last week, it did make back 96% of that loss.
Thin to Win
The idea that the markets were going down yesterday was way off base. The short sellers piled it on throughout last week, on Friday’s close and during Sunday night’s Globex session when the ESM14 dropped 10 handles. One of the patterns we have noticed is how the ES will make a lower low in Globex and open above that level on the 8:30 open. This set up another one of MrTopStep’s trading rules: “thin to win.”
Yesterday’s volume in the June E-mini contract (the new front month) (CME:ESM14) was over 1.8 milion contracts, well above the S&P 500 E-mini’s daily volume—or so it would appear.
As we have always said, volume matters, but when you break down the total you will get a better understanding of how the rule works. Total ESM14 volume: 1.8mil – 450,000 contracts traded on Globex -485,000 for the ESH14 / ESM14 E-mini S&P spread and total day trade volume drops to less than 1 million contracts. Then take out 65% for program and algorithmic trading. What you get is what we call … thin to win.
Two-day Fed Meeting
To think that the S&P is just going to go screaming higher right now is probably too simplistic. Sure, the S&P can rally further, but with another taper coming down the pipe and Russian President Vladimir Putin scheduled to address the Russian Duma, the news algos will be grabbing the headlines before we get them.
The first day of a two-day Fed meeting is usually a quiet day, but with so much global uncertainty we cannot rule out some big moves both up and down. Yellen is on path for her second taper since taking office. So far the tapers have not had the downside effect most traders thought, but as we go further into the cycle we think that may change.
The Asian markets closed mostly higher and Europe is modestly higher as well. Today’s economic calendar starts with day one of the Fed’s two-day meeting, Consumer Price Index, housing starts, Redbook and the Treasury International Capital number.
Putin has approved a draft bill for the annexation of Crimea, one step away from formally taking over the Black Sea peninsula. This is nothing new as Russian troops have been occupying the region for more than two weeks. The Cold War is back and when the U.S. and its partners respond to Russia, global markets will give their opinion, too.
Our view
Turnaround Tuesday has been up 11 out of the last 12; last Tuesday broke the winning streak. We don’t doubt the ESM14 can go up but also cannot rule out some selloffs too. We lean to selling the early rally and buying weakness. There is no way all the shorts covered, as the 14-point pre-open rally shows.
March expiration study: http://mrtopstep.com/march-expiration-study/
- In Asia, 10 of 11 markets closed higher: Shanghai Comp. +0.08%, Hang Seng +0.51%, Nikkei +0.94%
- In Europe, 6 out of 12 markets are trading higher: DAX -0.50%, FTSE -0.12%
- Morning headline: “Putin approves draft bill for annexation of Crimea”
- Total volume: 1.85 mil ESM/0.8 mil ESH and 41K SPM/39K SPH contracts traded
- S&P Fair Value: 1851.18 (futures 6.32 higher at 1857.5 as of 6:04 AM CT)
- Economic calendar: Two-day Fed meeting begins, Consumer Price Index, housing starts, Redbook, Treasury International Capital.
- E-mini S&P 5001870.00-0.75 - -0.04%
- Crude98.55-0.22 - -0.22%
- Shanghai Composite0.00N/A - N/A
- Hang Seng21538.811-44.689 - -0.21%
- Nikkei 22514462.52+51.25 - +0.36%
- DAX9242.55+61.66 - +0.67%
- FTSE 1006605.28+36.93 - +0.56%
- Euro1.3921
