Buy Crude Oil/Sell The S&P 500

The S&P futures continued its current pattern of closing up one day and down the next. While there was a heavy load of Fed speak, it was the a batch of strong data that did in the S&P 500. The April consumer prices report rose at its fastest pace in three years, and the better Industrial Production number and the housing number set aside the notion that the economy is weaker than most people think, which could push the federal reserve to start raising rates sooner than later. Earlier this week, Federal Reserve president John Williams said there could be ‘2 to 3 rate hikes’ by year end, and the overall reaction was to sell the better news.

Overnight, worldwide equity markets mostly closed weaker, and the S&P 500 futures traded in a choppy range, making a 2038.50 low on the Euro open, and trading as high as 2045.75 at 5:00 am CST. Currently the index is trading a tick lower at 2043.25, on just over 150K volume, at 6:00 am cst. Looking into today’s session, the light globex volume and tight range, combined with the ESM16’s firmness compared to other indexes, and the light economic calendar this morning, likely favors a sideways to higher “thin to win” type chop going into the Fed minutes this afternoon. From there it’s anybody’s guess.

Yesterday’s 2036.75 low maintained support at the Sunday night low of 2035.00 and Friday’s 2038.50 low. This 2035-2040 area is pivotal, and it becomes likely that the next test will break through this area and target this month’s 2030.50 low, and April’s 2026 low print. The charts continue to favor lower price action, but bears seem to keep dropping the ball, and fail to maintain momentum at critical levels leaving the program buying left to push the index higher.

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To the upside, the 2046.75 globex high becomes an important risk marker for the day, and a bounce above leaves the door open for the 2055 area of yesterday afternoon then the 2060-2063 high from yesterday. However, most of the range will be dictated by the initial reaction to the Fed minutes today on a light book controlled by programs, and then the heavier book in the final hour. Remember, the algo’s push for stops in both directions, and typically the initial move is the wrong one, but get’s traders in before the HFT’s push the stops even harder in the reverse direction.

Bank Of America/Merrill Lynch: In the March Summary of Economic Projections (SEP), more Fed officials saw downside growth risks versus December. However, the April statement highlighted “additional strengthening of the labor market” as well as strength in household real income, consumer sentiment and housing. How the Committee assesses the risks around growth and what growth pace would be sufficient to support additional hikes would notable. So to would be the debate around how much slack remains. On inflation, the April statement remained cautious and changed little. An assessment that inflation or inflation expectations have started to improve would also be notable, and mildly hawkish. The minutes may also discuss how the Fed intends to interact with and guide the markets through communication. Examples might include re-introduction of a balance of risks, changes to the “monitoring” language, and explicit signals in the statement. We expect some debate over the timing and implementation of any changes to Fed communications. Additional discussion topics that should get attention may include: the recent decline in the trade-weighted US dollar and the impact of exchange rate movements on Fed policy, the outlook for global growth (particularly China) and the corresponding risks (such as Brexit), and the growth rate of productivity. Forward-looking discussions around the number and pace of hikes might also garner some attention, but as suggested above the market should generally fade these as old news. We expect the broad tone to be consistent with additional rate hikes later this year.

Barclays: As expected, the FOMC took a cautious stance at its April meeting. We viewed the statement as leaving the door open for June but by no means promising a rate hike. Although we believe that data since the April meeting have likely shifted the timing of the next hike from June to September, we believe that much of the caution of FOMC members apparent in the March meeting owed to early-year financial market volatility, and we look to the April minutes to judge the extent to which these concerns have waned. In addition, we see the committee as a whole looking through the Q1 weakness; however, we look to the minutes for any split in views among committee members and the number of participants who are concerned that the slowdown reflects the new trend. The April FOMC statement kept the Fed’s options open, largely looking past the weak 1Q GDP data and slightly downplaying global and financial risks, but gave no clear signal on future policy. Since the meeting, a number of Fed officials have suggested that the Fed could still hike (at least) twice this year, whereas many Fed Watchers – including us – have recently revised expectations for rate hikes this year to just one. In this sense, the minutes are likely to be relatively stale. Market attention should focus on what conditions Fed officials indicate would be needed to hike, rather than any discussion of explicit timing that may appear in the minutes. An indication at the April meeting that the Fed remained quite far away from its next hike would likely be dovish for the markets.

In Asia, 7 out of 11 markets closed lower (Shanghai -1.27%), and In Europe, 6 out of 12 open markets are trading lower this morning (DAX -0.24%). Today’s economic calendar includes MBA Mortgage Applications, Atlanta Fed Business Inflation Expectations, EIA Petroleum Status Report, and the FOMC Minutes.

Our view: Well, we had it right about the markets going sideways to lower after a big up day, but we had no idea that the ESM16 would trade all the way down to 2037. It was one sell program after another with only a few small short covering rallies. There is an abundance of sell stops building up under the 2038.00 to 2036.00 area, and another big load of sell stops under the 2031 -2029.00 level. It’s 7:20am CT and the ESM just traded down to 2039.50. Lets face it the overall tone of the S&P is negative, and the old adage about ‘Selling in May and Walking Away’ is showing its face. The big investment firms took yesterday’s better data and sold it while crude oil traded above 48.50, and overnight traded up to a new high at $49.23. Our view is to sell the early rallies and buy weakness keeping in mind all the sell stops below. It could be that the trading range is about to expand to the downside.

• In Asia 7 out of 11 markets closed lower: Shanghai Comp -1.27%, Hang Seng -1.45%, Nikkei -0.05%
• In Europe 6 out of 12 markets are trading lower: CAC -0.34%, DAX -0.24%, FTSE -0.51% at 6:30am CT
• Fair Value: S&P -3.16, NASDAQ -2.42, Dow -31.64
• Total Volume: 2.0mil ESM and 5.6k SPM traded

• E-mini S&P 5001986.25-12.00 - -0.60%
• Crude Oil
• Shanghai Composite
• Hang Seng19826.41-292.39 - -1.45%
• Nikkei 22516644.69-8.11 - -0.05%
• DAX9865.11-25.08 - -0.25%
• FTSE 1006128.47-39.30 - -0.64%
• Euro1.1283