S&P 500 Futures: Up 30 Handles from Italy’s Referendum Low

‘It takes days and weeks to knock the S&P down, and only 1 day to bring it back.’ This trading rule rang loud and clear yesterday. After trading down to 2179 on Globex after the Italian referendum on Sunday night, the S&P 500 futures (ESZ16:CME) rallied up to 2205.50, and then up to 2208.75 just after 9:00 CT. Before the futures traded up there I put this out in the forum:

IMPRO:Dboy:(9:55:58 AM) : I still lean to selling the rallies but would not be surprised we trade 2209

After trading a tick shy of a 30 handle bounce, the ESZ tired out as the typical Monday blues returned. The trade was quiet during the cash hours, and the ES was held in an exact 10 handle range.

We said yesterday what we have been saying for a couple weeks, that the 2200 price is an important floor. A once the S&P’s broke above there early in the session, they retested that level late in the day, making an afternoon low of 2199.25, before rallying back up to 2206.00 in the closing hour. While 2200 looks to resume its tendency of support, the 2210 area we also wrote about seems to be a ceiling at the moment. Now it looks like the index will play ping pong between these key levels.

Clearly the best trade over the last 6 sessions was the 30 handle rally Sunday night into Monday. Sure, my short that I initiated early last week worked, but it took several sessions, and buyers only needed a single session to bid them back up. Again reminding us of what MrTopStep has been saying over the last few years, “it takes days and weeks to take the S&P down but only one to bring them back up.”

At the moment, there is not much more to say about this market. We think that it’s going to be slow in the early part of this week, and then as we get closer to next week’s Fed meeting, volume and range may pick up. This could possibly lead to some profit taking and removed risk ahead of the Fed meeting, mid month rebalance, and December quad witch, all next week. This means that we will start looking for the PitBull’s Thursday/Friday low the week before expiration.

The Fed can always be a game changer, however, the markets do anticipate a hike, and it seems there would be more volatility if the Fed didn’t hike, given the 95% chance that the Fed Fund Rate futures see. But, last year after the hike the S&P’s started to get weak in December before falling into correction mode once again, and so as the Fed moves forward and gives future guidance, nothing can be taken for granted here.

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Overnight equity markets both in Asia and Europe continued a modest bid higher. The S&P’s maintained a quiet, and range bound, trade. The ES made a low of 2200.25 early in the European session, once again holding that pivotal floor, and then traded up to a high of 2206.50 about two hours later. The S&P was held to a 6.25 handle range, last printing 2205.00, up three ticks on the session, with volume at 102k as ov 6:00 am cst.

Going into today’s regular session, the calendar is the lightest of the week, and overnight volume is low with a tight trading range. With the resilience of the S&P and a trade above 2200, we look for some thin-to-win type price action. Bulls have to take out the 2210 level, then try to close above and build a floor there, meanwhile, bears need a close below 2200.

Barclays: