How do things stand after the FOMC? Mr Top Step reveals all
Tuesday, after Apple's earnings came in lower than expected, the ESH16 sold off all the way down to 1878.75 on Globex but caught traders short and covering into the rally prior to the 8:30 CT S&P cash open. After the 8:30 open, the ESH16 rallied up to 1894.25 and then sold off down to 1879.75 in the early going, then rallied up to 1910.00 before selling off again. The PitBull said the trade was like the old song; take out the highs, take out the lows.
We could do a big thing on the ups and downs of the S&P futures for the day, but to tell the truth, that would take too much time and too much writing. Basically the ESH16 traded to the highs as crude oil jumped. You could see the ESH struggling after the CLH sold off and then bounced back, but after the FOMC Minutes hit the tape,the ES rolled from the 1904 level back up to 1909.50, and then puked lower in the late afternoon trade. Someone on Twitter asked how to read the Feds headlines, and we said 'fade the first move' in the ESH, and that was correct. The ES went on to sell off all the way down to 1864.50 and then chopped back up to the 1875-1878 level going into the 3:15 CT futures close. Apple (APPL) closed at $93.42, down -6.57%, and crude oil futures (CLH16:NYM) settled at $32.30, +3.0%. The ESH seems to follow the CLH early but the late weakness in the S&P was a good example of how once the S&P rallies and starts to reverse you just never know how far it will fall. Many traders had 1877.00 as support and the ES went flying thru the level like it was nothing. Not until late in the day when the MiM started to rally did the ES start to short cover, and then after the close Google (GOOG) came out strong trading up $14.00, and Facebook (FB) beat their earning expectations with its first billion dollar profit.
Fed's Mistake?
The ESH16 continued to trade lower overnight down to the 1866.25 level and then rallied all the way up to the 1895.75 before selling back off down to 1872.00. From there, the ES bounced back up to 1884.00 and is currently trading at 1881.50, up 6.50 handles from yesterday's close. A lot of movement yesterday was due to oil jumping and the other part was the Fed announcement. Four hikes in 2016 isn't going to happen because of how fragile the economy is. It has sometimes been hard to figure out the Fed's course as growth slowed last year, now they are saying:
Yes, the economy seems to be growing at a "moderate pace," but no longer are the risks balanced between an economy picking up steam and one slowing further. Business investment, called "strong" last month, is now "moderate", and the Fed noted that it was closely monitoring "global economic and financial developments." The statements got the support of every voter on the fed panel, including dove Eric Rosengren to the hawk Esther George, meaning that there is wiggle room. If the economy suddenly seems to pick up steam in the next two months, it has the option to lift interest rates at its March meeting, but we do not think that is in the cards. Only time will tell...
In Asia, 8 out of 11 markets closed higher (Shanghai Composite -2.92%), and in Europe 9 out of 12 markets are trading lower (DAX -1.70%). Today's economic calendar includes Durable Good Orders, Jobless Claims, Pending Home Sales Index, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 7 Yr Note Auction, Fed Balance Sheet, Money Supply, and earnings from Baker Hughes Inc (BHI), Blackstone Group LP (BX), Caterpillar Inc (CAT), Eli Lilly And Co (LLY), Ford Motor Co (F), Hershey Co (HSY), Microsoft Corp (MSFT), NASDAQ Inc (NDAQ), Northrop Grumman Corp (NOC), Nucor Corp (NUE), Potash Corporation (POT), Time Warner Cable Inc (TWC), Under Armour Inc (UA), and Visa Inc (V).
Our View: Who knows? Did the FOMC Meeting use up all the buying for the end of the month rebalance? It was an ugly sell off, and while the ES did bounce, I am just not sure there isn't some more downside. I am also concerned that there could be some type of end of the month 'walk away' trade. I continue to trade both sides of the ES. I am not getting married to the up or downside. Like our old saying goes, 'We are not here to fight city hall.' If the ES is going up or down we want to go for the ride. That's how I see this right now. Our view is to continue to play both sides of the ES, buy the early weakness and sell rallies. 1920 is still a target, but we took out the buy stops yesterday, exactly where we said they would be; 1901 to 1910.
As always, please use protective buy and sell stops when trading futures and options.
@MrTopStep
