Market Overview

MrTopStep Best of 2012: 0 for 2 and the Fade Game


By Danny Riley
When it comes to the Fed and the ECB, the locals and traders on the floor we talk to had one part of this right. They were worried that the Fed would step up and the ECB would do nothing. Well, neither stepped up, and with that, up went the bonds and down went the S&P. As the week wore on, so did the markets. After last Friday's blowout to the upside, the SPU rallied up to 1387 and chopped lower all week. Both the Fed and the ECB “kept the door open,” but it just was not enough. While the room called many of the highs and lows the last few days, we have to admit that we should have known better. We figured the Fed would be tentative, but we honestly thought there would be more movement. After Draghi's pledge to “do whatever it takes” to save the euro last week, all he did yesterday was kick the can down the road.

Over the past few weeks the S&P has been doing a lot of back and filling. Additionally, the overall price action had improved. Our thought process was that with the S&P up, anything concrete from either the U.S. or Europe would push the S&P futures back up to the big figure at 1400, but that didn't happen. The big false start on the last run up caught everyone off guard, but it shouldn't have. We all know nothing really positive can really happen, that eventually the U.S. and Europe will have to pay the piper. We also know that right now the S&P really isn't going anywhere, that it's range-bound from 1320 to 1385. Yesterday the Pit Bull said it's all a “fade game,” that when they look great you have to sell 'em, and he was right on. After the open the ESU immediately fell into sell program levels and in came the algos searching for sell stops. After the SPU made its low, it chopped around in a narrow range until late in the day, and then in came the late-day buy programs that pushed the futures up 10 handles off the low.

False expectations have really hurt traders who are trying to hold positions. Yesterday Draghi lost credibility in another great example of the Europeans' lack of urgency. The policy actions Europe has to put in place have been put off again. Despite the selloff, sentiment is still bullish and today it's the July jobs report that will be the main focus. Economists expect 100,000+ jobs this month, and with the S&P up 10 handles this morning it should prove to be a busy day.

Our view:
Timing is everything in this business, and false starts are part of that. The S&P is still holding 1350 and continues to back and fill. While we have not gotten the push up to 1400, we still think it's in the cards. With the Fed and the ECB out of the way for now, we still think the S&P will press higher. We are going to leave it at that. As always, keep an eye on the 10-handle rule and please use stops.

For today:

  • It's 6:00 a.m. and the ESU is up 9.75 handles at 1371.75, crude is up 1.16 at 88.29 and the EC is trading 1.2265, up 85.
  • In Asia 7 out of 11 markets closed lower.
  • In Europe 10 out of 12 markets are trading higher (DAX up 1.72%, CAC up 2.25%).
  • Economic calendar: non-farm payroll, ISM non-mfg index and earnings from P&G, Toyota, Beazer Homes, NYSE Euronext, Berkshire Hathaway.
  • VOLUME: 2.82mil ESU and 14.8k SPU traded
  • SPREADS: 2.2k SPU/Z spreads traded
  • FAIR VALUE: S&P +10.50, Nasdaq +20.00

MrTopStep Closing Print Video:

Thursday's S&P 500 futures wrap-up from the floor of the CME:
Draghi, ECB and the Eurozone appear to be deer stuck in the headlights. The ECB vote for no action at this time disappointed and took the equities 27 handles lower in just over an hour and the opening of the RTH.

The S&P 500 futures trade started with 850k ESU and 3.2k SPU traded on Globex, trading range 1356.00 – 1383.00 / Wednesday's range 1381.20 – 1369.00, settled 1370.40 down 4.2 handles. William Blount (08:12:58): BEARS NOW NEED TO KEEP 1368.75 CONVERTED BULLS FIRST BIG HURDLE THERE. The RTH opened eleven handles lower at 1359.50 – 1358.70, traded 1356.50 early low before grinding back through the opening range and stalling in the 1363 area before trading nearly 10 handles off the low to 1367 by 9:10CT. Mike_V (08:52:12): ES: 1367.75 x 1352.50 vol window gave the chat room a nice match to take profits on the run up and reverse just off the high. A new high of 1369.20 traded by 9:30, 10 handle obj met before back and filling to 1365.50 at 9:42 and popping back to retest the high before the Monti/Rajoy press conference sent the Euro to new lows while spiking the spoos down to 1362 area as the 30yr up 1.10 on the day by 10:55. Roger_Volz (10:02:25): German 2s in negative yields…last couple times triggered asset reallocations while the EUR/USD was trading the largest daily range since 11//9/11. The 30yr bond traded a new daily high of 152.00 while the spoos back and filled to 1353, but held 1356 area before trading down to new daily lows of 1350 at 11:35 and traded sideways to slightly higher through the noon hour.

It's 2:00 CT. There are 40 locals in the S&P pit; total ESU volume is 2.5mil traded. That would be considered high for this time of the day. After a small selloff back down to the 1351 area, the SPU “held” and traded all the way back up to 1358 and then sold back off down to the 1355 area.After a few attempts to break through the 1358 area the SPU traded back up to 1359 just before the imbalance was posted. At 2:45 the cash imbalance showed MOC BUY 350mil. After the imbalance was posted the SPU traded up to 1361. On the 3:00 cash close the SPU traded 1360.30 before settling at 1362.00, down 8.5 handles on the day. Can you say PPT?

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SP 500 Futures 60 & 15 Min Charts and Indicators..…a double bottom left in the Asian session at 1370.50 sees nudge into VST 5 min OB above 1379.00 at 4:15am. Consolidation ahead of the Fed. ADP beat provides little impetus while taking off some QE bid (as evidenced by gold's dip).
ST 60 min chart bends but is not fully broken with hold above the 89-pd SMA on globex test with a measure of technical repair on retake of 1375.90; leaves an air pocket open to a series of highs from 7/27
An air pocket to 1365.00-1363.00 is still open with momentum loss sub 1374.00. The break below yesterday's low (saw 60k contract hit in eminis into close for a mini fast and furious beginning to fill).
Resistance groupings: ………….1386.50-1387.50 ….1389.00-1390.50…..1397.25……1403.50-1405.00……..1410-1412.00 major
Support groupings : 1376-1374.00….1365.00-1362.25…….1354.50-1353.75……1348.00…..1341.00 ….. 1337.25 ….1330.50…1328.50….1323.00/1320.50-1320.00
ST OB next > 1410 from 1397.25 //// ST OS < 1341.00 unch

60Min Model




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