The Rooster Call: Range and Equity Index Futures

Hit the Mark Trading’s Brief Review of Overnight Market Action Setting the Tone for the Trading Day

Good Morning Traders!

Overnight market action in equity indexes finds trouble in Paradise with the market moving on the latest economic reports.  Traders are on edge, yet in the back of their mind they understand equity index futures and bonds are the only game in town.

The idea is trade equity index futures in a wide range.  Breaking this range is a big time technical analysis event.  Before you get any ideas the end is near causing equity index futures to break down…or perhaps you are thinking this is the time equity index futures are ready to break higher to new levels…let us remember the important rule from our kitchen table view…support and resistance holds…until it doesn’t.  When the facts change, we change.  Professionals are playing the range.

The DAX fell through support of 11868 yet moved back up after only one day…“the line holds until it doesn’t!”  The line was tested yesterday, and survived test.  Overnight, another breach and through this action we can step back with our view and see more of a topping pattern potential emerging on DAX.  Here’s the deal…A close below 11665 is ominous like a bell toll warning. 

I think DAX is waiting for a Greece resolution. 

Meanwhile, ES is trading lower this morning thanks to DAX, yet maintaining the side-way motion between daily chart main floor pivot and R1.  This range of movement is worth around $800 or so. 

All the ES is doing is expressing what I have said over and over…professionals are too afraid to buy and too afraid to sell.  A strong enough catalyst has not emerged. For the ES day trader, you are being told by the market each day to curb your expectations of a “big run higher.” Until resistance is taken out, expect market pull-back at recent highs. That’s it. Nothing special.

Overnight news is all about having global economic fundamentals shoved in your face.  Not pleasant.  Germany and France (number one and number two economies of Eurozone) PMI fell below expectations. As a whole, Eurozone PMI for services and manufacturing fell from 54 to 53.5.  Looking at manufacturing separately, we have a drop to 51.9 for April from March reading of 52.2. A reading over 50 represents economic expansion…nervous traders, however, use the knee-jerk response selling the news dropping DAX. Interestingly, Euro is higher as if recognizing expansion continues.

Japanese manufacturing fell below expectations into contraction with a reading below 50. China’s PMI as tallied by HSBC/Markit dropped from 49.6 reading in March to 49.2 reading in April continuing contraction.  FT.com reports February was the only month of a reading above 50 for China in 2015. Today’s reading is the lowest in 12 months.  The Chinese news pushed the Shanghai stock market higher rising 0.4% as the euphoric sentiment continues. Traders bet on additional stimulus measures.  Central banks have trained traders expectations.

USA PMI “Flash” reading set for 9:45AM ET.  Today, this number should carry more weight, especially if “better than expected.”

In the USA we expect more of the same “better than expected” earnings release for the vast majority of firms as a method of supporting the stock market.  CAT reports “better than expected” earnings per share today.  No surprise. GM bucks the trend showing weaker than expected profits. Dow Chemical beats.  Proctor and Gamble missed. 

Facebook reported mixed results from both foreign exchange and high transitioning expenses. Any pull back is an opportunity for a very long term position outlook using options in my opinion based on the structural changes / expansion that will drive FB revenue streams forward, especially based on early results of new video sharing.  My wish, hope and desire is a hard knee-jerk sell-off on FB this morning.

Yesterday bonds sold off hard on the strong existing homes report.  Bonds are up today with worry over the upcoming PMI report. Bond traders should be aware bonds are in play.

Economic Reports
8:30 Initial Jobless Claims – In line with consensus range coming in at 295K new claims for the week.  4-week average is steady.
9:45 PMI Manufacturing Index Flash
9:45 Bloomberg Consumer Comfort Index
10:00 New Home Sales —IMPORTANT NUMBER TODAY
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Markets

  • USA equity index futures are incrementally lower..nothing special going into the open.
  • VIX continues communicating “no fear” with outlook sideways to upward bias for USA stocks.
  • Gold slipped and fell on the home sales report. Price tests support.
  • Bonds fell hard and will likely fall today IF PMI is better than expected and/or New Home Sales are stronger than expected. Bonds in play with price action.
  • US dollar nothing special. Lower incrementally today.
  • Euro higher on PMI reports showing continued reading over 50.
  • Yen lower.
  • Canadian dollar takes a pause watching crude.
  • Crude quite, higher after the Wednesday inventory report shows larger than expected inventory build. Traders are focused on six months ahead expecting lower production ignoring the physical fundamentals. Crude in play until further notice.
  • Natural gas consolidating. Report today.
  • Copper quietly higher.
  • Corn higher as US dollar incrementally lower.
  • Soybeans higher as US dollar incrementally lower.
  • Wheat higher in sympathy to Corn and Beans.
  • Coffee in play after two very large range days. 
  • Cotton pops out of the blue higher.
  • Sugar very quiet.

Think About This…

Iron ore popped over 5% on news BHP will slow their iron ore expansion program. This news has not helped the Aussie dollar.  However, grave dancers will consider a very long term speculative trade selling put spreads on CLF.  We are already in this type of trade.

We have a ton of earnings release reports today. Since we expect more often than not “better than expected” readings…the key is forward guidance.

Enjoy your trading day!

To learn more from Martin, visit HitTheMarkTrading.com to join his mailing list and receive blog updates.