Beware The Month-End Rebalance
MrTopStep | Jan 31, 2018 12:18AM ET
- In Asia 10 out of 11 markets closed lower: Shanghai Comp -0.99%, Hang Seng -1.09%, Nikkei -1.43%
- In Europe 11 out of 12 markets are trading lower: CAC -0.54%, DAX -0.66%, FTSE -0.72%
- Fair Value: S&P +0.38, NASDAQ +8.35, Dow -24.46
- Total Volume: 1.3mil ESH & 349 SPH traded in the pit
Redbook, 8:55 a.m. Eastern; S&P Corelogic Case-Shiller HPI, 9 a.m.; Consumer Confidence, 10 a.m.; State Street Investor Confidence Index, 10 a.m.; Farm Prices, 3 p.m. Pre-market earnings: Danaher (NYSE:DHR), Polaris Industries, CIT Group, Aetna (NYSE:AET), Harris, Anixter International, PulteGroup (NYSE:PHM), CNX Resources, A. O. Smith, Scotts Miracle-Gro, Dover, Harley-Davidson, Pfizer (NYSE:PFE), Zimmer Biomet Holdings, Metro, Corning, Silgan Holdings, HCA Healthcare, Ally Financial, T. Rowe Price Group, Hubbell, CDK Global, McDonald’s, Paccar, Franklin Resources (NYSE:BEN), Nucor (NYSE:NUE). After-market earnings: Align Technology, Chubb (NYSE:CB), Electronic Arts (NASDAQ:EA), Stryker, W. R. Berkley, Illumina (NASDAQ:ILMN), CA, Advanced Micro Devices (NASDAQ:AMD), C.H. Robinson Worldwide, Juniper Networks (NYSE:JNPR), Packaging Corp Of America, Boston Properties (NYSE:BXP).
h2 S&P 500 Futures: #ES 2878.75 ‘Blow-Off Top’/h2Friday’s late day run up led to another push higher on Globex Sunday night, taking the S&P 500 futures (ESH18:CME) all the way up to 2878.75. Asian shares fell after local reports in China said regulators spoke of clamping down on “high-priced” stocks. In Europe, the Stoxx 600 was down slightly, and in the U.S. the dollar was up, and the S&P futures were down 0.2%.
On Mondays 8:30 CT futures open, the S7P 500 futures printed 2666.25, pulled back to 2864.25, and then traded up to the high of the day at 2871.25. After the high was in I put this out, IMPRO:Dboy:(9:49:01 AM):well if you are a seller here is the push, and a few minutes later the ES started heading south, making several lower lows all the way down to 2854.50. The ES had gone up too much too fast on Friday, and the algos started chasing sell stops.
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After the early low, the ES short covered and made several higher lows until it traded up above the vwap up to 2868.25, and then pulled back down 2863.50. From there, it sold off all the way down to new lows of the day at 2851.50, as the MiM went from buy $406 million to sell to $980 million to sell. There was a small pop back up to 2859.00 before trading down to 2855.50 on the 3:00 cash close, down 19.25 handles, or -0.67%, and went on to settle at 2853.75, down 21 handles on the day and down 25 handles from the Globex high.
Between 10-year note settling at 2.695%, the highest level since April 2014, the end of the month rebalancing talk, and the VIX going out at 13.84, it ended up a pretty ugly day for the S&P. Every bounce was a short squeeze for the final knock down at the end of the day. I said early on in the MrTopStep forum that Friday and Sunday night looked like a blow off top, and that’s how it closed.
h2 Keystone Charts – Bitcoin/h2Recent negative news seems to have capped any upside potential in Bitcoin; rising concerns about the global regulatory environment as well as security breaches.
The new South Korean cryptocurrency account system has entered into force nationwide today, ending the current practice that allowed for anonymous trading of cryptocurrencies. Traders must open real-name accounts at the same banks as their exchanges in order to deposit money to trade cryptocurrencies. Bitcoin.com
So far there has not been any unusual traffic at the six major banks participating in the new system.
It was the volatility that was luring traders to bitcoin, but the recent lack of volatility has actually seen trading volume increase in the futures. We will continue to use the 12,100 area as initial upside pivot pt. We will need to see if there will be any momentum in the Gemini Bitcoin Price with a break out of the short term triangle formation.
The Bitcoin Real Time Index has been trading sideways for a week between two key technical pts. Using 9980 as iniital key support.
Feb Bitcoin.
Overnight, equity markets in Asia and Europe were down across the board, following suit with yesterday’s weakness in U.S. stocks. According to MarketWatch.com, the main force driving stocks lower is how the increase in U.S. treasury yields is affecting borrowing costs.
In the U.S. the S&P 500 futures opened last night’s Globex session at 2853.25, and initially traded higher, printing the high at 2858.00 just after 6:00 PM CT. There was very little strength after that, and by 8:00 PM, the ES had melted all the way down to 2831.00.
Things simmered down after that, and stocks began to recover a little. As of 7:00 AM CT, the last print in the ES is 2839.75, down -13.75 handles, with 261k contracts traded.
h2 Earnings vs. End Of The Month Rebalance ‘Walk Away’/h2Our View: Today there are two contrasting thoughts on the S&P. The first is the earnings scene. According to FactSet, firms in the S&P 500 are beating analyst estimates for sales at a record rate. With nearly 25% of companies in the S&P reporting 2017 4th quarter earnings, 81% of the firms have beaten forecasts for revenue growth. If that rate holds through the end of earnings season, it would be the highest beat rate in records going back to 2008. The other side is, with the S&P up over 7% in the first trading month of the year, there is a high probability that there is going to be some type of rebalancing at the end of January.
According to a Credit Suisse (SIX:CSGN) model, with the S&P up 7%, the 10-year treasury futures down over 1.6% in January, and with those profits and losses in mind heading into month-end, pension funds are set to purchase about $24 billion in fixed-income securities, and selling an unusually high $12 billion of U.S. equities. J.P. Morgan’s calculations say that, each 1% climb in stocks equates to $25 billion of bond buying by U.S. pension funds to keep their asset allocation balanced. State and local government defined benefit plans have about 60% in equities and 25% in fixed income, while for private plans, the split is closer to 50-40. In total, that’s $125 billion of rebalancing in the wings.
Throw in stock and commodity sentiment at record highs, Trump’s State of the Union address tonight, the Federal Reserve’s two-day monetary policy meeting, and Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOGL) reporting this week, it’s not hard to see why the VIX is going up. From the December 29, 2677.50 low to Sunday nights Globex high at 2878.75 high the ES has rallied 220.25 handles. When you take the 19 trading day so far this year and you divide it by 220.25 that’s an average gain of 11.59 handles a day.
Our view is for increased volatility. While our lean is to sell rallies over the next few days, we do expect to see some bounces. We still see key support at the 2828-2830 level. If that breaks down the ES could see 2809.50, last weeks low, but we do not expect that.
PitBull: CLH OSC 21/26 TURNS UP ON A CLOSE ABOVE 66.05; ESH OSC 31/38 TURNS DOWN ON A CLOSE BELOW 2862.94; VIX OSC 10/8 TURNS DOWN ON A CLOSE BELOW 11.36.
h2 Market Vitals for Tuesday 01-30-2018/h2Market Vitals for Tuesday 01-30-2018
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