Crude Oil, S&P Futures, Higher Rates and Marko Kolanovic

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As the markets head into the final 16 trading days of the year, the sharp drop in crude oil prices have weighed in on the S&P 500. Yesterday, the front month crude oil futures contract (CLF16:NYM) sold off down to a new daily low at $36.64 a barrel before closing down only fractionally, -0.35% on the day. At a time when the public is looking for a year end rally, the S&P futures (ESZ15:CME) have made multiple attempts to trade and close above 2100, but has failed on every attempt at that level. After the steep declines, the ESZ15 closed down -1.01% to 2058.70, the NQZ15 closed down -0.25% to 4687.25, and the YMZ15 ended the day down -1.19% to 17534.00.

This morning MrTopStep is writing a rebuttal to a story posted on ZeroHedge about the head of quant analytics at JPMorgan. The analyst, Marko Kolanovic, lays out a very negative picture for the upcoming December Federal Reserve meeting next week, and the November jobs number. As we have seen over the last few months it’s not all upside in the S&P, there have been some sharp declines, and now many traders are wondering if Santa is going to take a pass on the markets this year.

I have made my year end calls; 2150 by mid month and 2200.00 by year end, but I have to admit that as more trading days get knocked off and the price of the S&P continues to waver, getting to these prices is getting less possible. Am I throwing in the towel? No, but I am moving my 2150 call from the middle of the month to after we get passed the December Quadruple Witching. Like I said in yesterday’s video; we are not buying stocks, we are not long term investors, we trade futures, which in many cases have short term horizons. We get in, we get out, we don’t fall in love with our positions, and if my year end call is wrong, I’ll move on just like any other trade.

Below are some experts from the ZeroHedge story, and here is the link to the original story (Beware The “Massive Stop Loss” – JPM’s Head Quant Warns This Unexpected Downside Catalyst Looms Next Week). No one knows for sure what the S&P is going to do, or when it’s going to do it, and as I have stated many times; it doesn’t do what most people want it to do when they want it. Do I think it’s possible the markers trade down to 1900 next week? Anything can happen, but it’s probably as likely as the S&P going to 2200.00 at year end.

A very well known quant analyst at JP Morgan is warning of a short term let down in the stock market. His name is Marko Kolanovic and he has made some great calls, such as predicting the the Monday August 24th “panic” the week prior, as well as the September 29th re-test bottom. Now he is predicting some big time ‘gloom & doom’ as the markets head into the Dec 15 and 16 two day Fed meeting and the December Quad Witch on Dec. 18. As traders, we need to look at everything, and this warning should not be overlooked.

From Kolanovic’s Note To Clients:

“There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050. Clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.”

Which then brings us to what Kolanovic believes is the key near-term risk. You can take it from there traders…

In Asia, 9 out of 11 markets closed lower (Shanghai Comp +0.07%), and in Europe 9 out of 12 markets are trading lower (DAX -0.06%). Today’s economic calendar includes the MBA Mortgage Applications, Wholesale Trade, EIA Petroleum Status Report, and a 10 –Yr Note Auction.

PitBull Thursday/Friday Rule

Our View: The S&P is giving the bulls heartburn. At a time when the markets should be going up, they are being weighed down by the ever shrinking price of crude oil (-$360bil in market cap this year), and the Feds non-stop higher rate drumbeat. It seems like the markets are in anticipation mode as next week it all comes to a head. Our view; right now the trend is lower, but we have not had any major rips since Monday. We lean to selling the rallies and buying weakness but still concerned there could be more downside.

‘S&P, Crude Oil, the Fed, and the December Quad Witch’

As always, please use protective buy and sell stops when trading futures and options.


    • In Asia 9 out of 11 markets closed lower : Shanghai Comp. +0.07%, Hang Seng -0.46%, Nikkei -0.98%
    • In Europe 9 of 12 markets are trading lower : CAC -0.34%, DAX -0.06%, FTSE +0.09% at 6:00am CT
    • Fair Value: S&P -1.11, NASDAQ -1.01 , Dow -8.23
    • Total Volume: 2.2mil ESZ and 10k SPZ
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