S&P 500 Futures: ‘Bears Take Over The Tape’

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

chart 06-14-2016

With the Asian majors all down -2.5% to -3.5%, and the DAX down nearly -1.5%, we knew the S&P’s were in for a long day of ups and downs. The S&P 500 futures (ESU16:CME) got off to a rough start opening 5 handles lower on the 8:30 ct open and then stutter stepping up 2089.25. The ES went positive briefly before reversing down to 2075.75 going into midday. Right after the low, a Brixit headline came out saying that 53% want to stay and 47% went to leave the EU, that’s the exact opposite of the actual poll. There was a sense of uneasiness over the index markets due to the Orlando, Florida nightclub attack, and you could clearly see it in the size of the bid / offer of the ES, which is usually 800 to 1,000 contracts, but yesterday dropped down to 200 to 400 lots. A small part of this could be due to the roll over, but the other part is that Mondays tend to be a low volume day in most cases, but clearly the news and the two day fed meeting was hanging over the markets.

Embrace The Chop

I had some small winners on my first few trades before getting caught up in the chop. I try not to let this happen because I feel like I am out of touch with the overall price action, but after buying and selling a few times and getting stopped, I called it a day. I said early in the day I thought the S&P would close at or near its high of the day, but crude oil kept trading above and below the vwap, and every time it sold off the ESU went offered. Additionally the VIX was trading 19.86 and not showing much weakness. It was a difficult trade, and late in the day, the ESU kept making lower highs and lower lows until the bottom broke and the 2074 low print of the month was taken out. Every time it looked like buyers could push it back up bids began to fizzle. As bad as thing looked, overall the day did not have a panic feel, just more of a profit taking feel as the day closed down 18 handles, or 0.90%, at 2069.50.

Overnight, equity markets both in Asia and Europe maintained their lower offer, this helped the ESU push to 2060.25, down 9.25 handles from yesterday’s cash close. The weakness really came in around the European open after the S&P was supported during much of Asia’s session. It’s clear that there is some risk off going into the Brexit vote. It is not at panic levels yet, and at some point will be priced in, but the market doesn’t like uncertainty, and one can never be certain surrounding such events. However, if it is sell the rumor, it will likely be buy the news. Going into today’s session the calendar gets heavier with the beginning of the two day Fed meeting. Now that the S&P broke the June low it looks like sell the rallies mode until at least 2050 prints.

In Asia, 9 out of 11 markets closed lower (Shanghai +0.32%), and In Europe 12 out of 12 markets are trading lower this morning (DAX -0.78%). Today’s economic calendar includes the beginning of the FOMC Meeting, NFIB Small Business Optimism Index, Retail Sales, Import and Export Prices, Redbook, Business Inventories, and a 4-Week Bill Auction.

Our View: Taken as a whole, the S&P didn’t act that bad yesterday and I think it had to do with three things. The first is everyone being too short, the second part is the two day Fed meeting, and the third and most important part is the exceptionally bullish expiration stats for the June quad witching. Our view, getting past the eco report and the first day of the Fed’s two day meeting should be quiet. That said, the stats are very positive today; up 21 / down 11 of the last 32 occasions. We lean to selling rallies and buying weakness with the idea the ES starts going back up.

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 +0.32%, Hang Seng -0.61%, Nikkei -1.00%
    • In Europe 12 out of 12 markets are trading lower: CAC -1.48%, DAX -0.78%, FTSE -1.29% at 6:30am ET
    • Fair Value: S&P -9.07, NASDAQ -8.45, Dow -104.34
    • Total Volume: 2.5m ESU 1.5m ESM and 29k SPU 30K SPM traded
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