S&P 500 Futures: Pre-Rate Hike Squeeze Job FED RateHike FuturesTradin

Yesterday, the S&P 500 futures (ESM17:CME) were weak overnight, opened lower on the 8:30 CT futures open, up ticked, and then got hit by several waves of sell programs that took the futures down to an early low of 2354.75. From there the futures then rallied up to 2362.75, sold off under the vwap at 2361.25, and then popped back up and double topped at 2363.25. After the double top the futures sold off down to 2357.00 (higher low) and just popped back up to 2362.00 (lower high). While the overall trade was choppy, there were also some good trades setups:

IMPRO:Dboy:(9:56:32 AM):I want to buyer for a pop but think it’s still too early

IMPRO:Dboy:(10:05:55 AM):paid 2360.50

IMPRO:Dboy:(10:08:51 AM):acts like crap

IMPRO:Dboy:(10:09:01 AM): like another flush is coming

IMPRO:Dboy:(10:16:39 AM):out 2359.50 -1

During the first trade I knew I was early, but when the ESM17 ‘flushed’ through the lows down to 2354.75, I told myself to stick with my trade idea. There was no way the shorts were going to get paid and stick to looking for a bounce, and that’s when I put this out:

IMPRO:Dboy:(10:31:58 AM):paid 2356.25

IMPRO:Dboy:(10:32:09 AM):same deal tight stop

IMPRO:Dboy:(10:52:40 AM): (driley) I think we are at or near the early low / looking for a bounce

IMPRO:Dboy:(11:07:19 AM):I don’t think the pop is over

IMPRO:Dboy:(11:30:58 AM):sorry for the late report I sold 2362s + 5.75 handles

Was it a good trade? Great trade? What was it? At the end of the day, it was a good trade that could have been a great trade, had I just stuck to the ‘MrTopStep 10 Handle Rule’. I knew when it started going up that the bounce would be at least 9 or 10 handles, but I didn’t have the patience, and I just wanted to book the profits. I have to remind myself that it’s all about moving on to the next trade, but I still wish I had more patience.

So, today is the day Janet Yellen and Company start pushing interest rates higher. To tell the truth, it feels like it’s been a long time coming. Did the Fed wait too long to start raising interest rates? I think so, but you can’t argue with the improvements in the economy.

While You Were Sleeping

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Overnight, Asian stock markets were mostly weaker, followed by a modestly higher European session. The S&P’s traded down to 2363.00 early in the Asian session before rallying to 2370.25 early after the Euro open. As of 5:33 am cst the ESM has last printed 2367.50, up 4.50 handles, on volume of 116k.

In Asia, 7 out of 11 markets closed higher (Shanghai -0.07%), and in Europe 8 out of 11 markets are trading lower this morning (DAX -0.10%). Today’s economic calendar includes the MBA Mortgage Applications, Consumer Price Index, Retail Sales, Empire State Mfg Survey, Business Inventories, Housing Market Index, EIA Petroleum Status Report, at 1:00 CT the FOMC Meeting Announcement and Forecast, 1:30 CT Fed Chair Press Conference and the Treasury International Capital number.

Post FOMC Performance from Stock Trader’s Almanac

In the following chart the 30 trading days before and after the last 72 Fed meetings (back to March 2008) are graphed. There are three lines, “All”, “Up” and “Down.” Up means the S&P 500 finished announcement day with a gain, down it finished with a loss. Down announcement days have generally been the best buying opportunity while up announcement days were more frequently followed by weakness.

Of the last 72 announcement days, the S&P 500 finished the day positive 43 times. Of these 43 positive days S&P 500 was down 24 times (55.8%) the next day. Of the 29 down announcement days, the following day was down 16 times (55.1%). All 72 announcement days have 0.46% average S&P 500 gains while the day after has been a net loser with S&P 500 shedding 0.32% on average.

Upside Risk

Our View: One thing is for sure… There has been a pick up in trading volume and it’s not all spreads. Whenever the ES spikes lower the volume picks up, but there was also some decent sized buying going on late in the day. Today has a very busy economic schedule, 8 separate numbers, and the Fed. While the public has become risk off over the last two weeks, the S&P still has not really broken down hard, and on the occasions that it does sell off hard, there is almost always a big bounce.

I do not know why but my gut says the ES may go down a bit, but I also think there is an even larger rally that may take place. In most cases, the day of a rate decision is quiet right up to the announcement, but with the algos picking up on every fed related headline, we could see some decent chop before the headlines hit.

According to the S&P cash study, today has been up 18 / down 14 of the last 32 occasions (bullish). Thursdays stats are exceptionally bullish, up 24 / down 8 of the last 32 occasions, and Fridays March Quad Witching has been up 18 / down 14 of the last 32. Does any of it matter? Only time will tell.

Our view remains unchanged; you can sell the early rally and buy weakness, or just wait for the sell off / pull back and find a good spot to be a buyer.

March-2017-Expiration-Stats

As always, please use protective buy and sell stops when trading futures and options.

• In Asia 8 out of 11 markets closed lower: Shanghai Comp +0.08%, Hang Seng -0.15%, Nikkei -0.16%
• In Europe 8 out of 11 markets are trading higher: CAC -0.03% DAX +0.04%, FTSE +0.23% at 6:00am ET
• Fair Value: S&P -3.07, NASDAQ +4.13, Dow -46.43
• Total Volume: 950k ESH, 2.0 mil ESM, 13k SPH, 13k SPM traded

Original post

Written By: MrTopStep