ECB, OPEC, JOBs Friday, June Fed Meeting, Options Expiration and More…

Charts, Commentary, News, Our View, Technical Analysis, The Opening Print, Trades

chart 06-03-2016

There was a high level of US economic reports and headline news yesterday, and the main one was, “U.S. private sector adds 173,000 jobs in May: ADP.” Then it was the ECB’s Mario Draghi headline saying, “Our measures have made a lot of difference, have been very effective.” After that it was the OPEC headlines saying “OPEC HASN’T REACHED NEW OIL SUPPLY AGREEMENT,” followed up by the next headline, “Saudi Oil minister; sorry we are not cutting.” Clearly the headline algorithmic trading systems ruled the day. At 10:30 CT there was a total of 660,000 ESM16s traded compared with Wednesday’s total volume of 1.3 million contracts traded. It was an early dip and then the rip.

While the term may be old and not always remembered, ‘the trend is your friend’ is one of the most important trading rules of all. While I called the next 50 handles higher off the 2047.00’s, I also tried to sell a few times on the way up, bucking the trend. After a few days of being on the wrong side, I decided it was time to go with the flow and start going with the ‘trend.’ I started buying weakness, and in doing so, I have been on a small roll making money for the last week or so. Did I get it all? No, I follow my rules – I get in and get out. You know what though? I have not thought about selling it at all; and yesterday morning, when the ESM16 was trading near the lows of the day, I said the spoos were going to trade 2104-2106, and the late day high came in at 2104.

Looking forward it is possible that the futures will make some type of short-term high, but all that means is that the ES sells off a little; back and fills then goes back up. Trader Dave said it correctly – “tomorrow’s high will likely not be exceeded for a while…this is probably more a time correction rather than price.” We shall see; but that said, next week could end up a proving ground. However, we have to get past jobs Friday to get to next week. On the other side of this is that if the S&P rips higher late in the day, we think Monday and Tuesday could be up. It’s all an extension of the easy money / zero rates play, and as long as that is going on, the upside party will continue.

Overnight the ESM16 traded in less than a 5-handle range as equity markets in Asia & Europe continued to rally. Going into NFP today, the price action statistics as well as the recent tape suggest that bulls have the advantage, especially after making the future’s highest close since last summer and the first close above 2100 since November. It looks like there are buy stops above 2105 into 2110, and then 2120, before a new high prints. We knew there were not going to be many more times the market would be rejected at the 2100 level before breaking higher, and it appears that is what it is poised to do.

In Asia, 10 out of 11 markets closed higher (Shanghai +0.46%), and In Europe, 9 out of 11 markets are trading higher this morning (DAX +0.60%). Today’s economic calendar includes Charles Evans Speaking, Employment Situation (NFP), International Trade, PMI Services Index, Factory Orders, ISM Non-Mfg Index, Lael Brainard Speaks, and the Baker-Hughes Rig Count.

Our View: At least for the first part of the day, we have to go with MrTopStep’s ‘Counter Trend Friday’ rule. If indeed the jobs number does come in lower than expected, the ESM sells off hard before the 8:30 CT open, and there is oversized Globex volume, we would look to buy the open of the first 2 to 4 handle drop after the gap lower. This is just for a trade and if it works we may call it a day. Additionally, when the S&P closed at a six month high, in the past when it managed to do that before the Nonfarm Payroll report, the ES rallied 75% of the time. In past years this has served as a high. Of the 28 times in the past 20 years that the S&P was at a six month high before the report, it showed flat-to-declining prices over the next 2-3 weeks 20 times.

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

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    • In Asia 10 out of 11 markets closed higher: Shanghai Comp +0.46%, Hang Seng +0.42%, Nikkei +0.48%
    • In Europe 9 out of 11 markets are trading higher: CAC +0.50%, DAX +0.60%, FTSE +0.99% at 6:30am CT
    • Fair Value: S&P -1.50, NASDAQ -1.16, Dow -12.67
    • Total Volume: 1.2mil ESM and 4.4k SPM traded
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