Ahead of the US open, Mr Top Step gives us his views for the day and week ahead

S&P 500 Futures; Jobs Friday And a High Tech Mess

After a very choppy start to February the US jobs report became front and center Friday morning. However, behind the lower than expected non-farm payroll number was the non stop liquidation of some of the largest tech names in the business. It was another scary close on Friday, and it's not just the drop in crude oil that is affecting the markets now, it's the widespread liquidation of stocks across all sectors.

FANG

While many traders were watching the broader market the S&P 500 futures (ESH16:CME) fell -1.78%. There was an even larger fall going on in the Nasdaq 100 futures (NQH16:CME), which fell 133.25 points, or -3.27%. FANG ( Facebook, Amazon, Netflix and Google ) are all down this year. Friday's big tech names like Linkedin (LNKD) closed down $83.90, or -46.63% on the day, and down -51.85% year to date. But the damages went well beyond Linkedin; Netflix closed down -7.71% and is now down -27.62% on the year, Tesla closed down -7.26%, down -32.25% year to date, and Amazon (AMZN) closed down -6.36% and is now down -25.71% in 2016. Tableau Software Inc (NYSE:DATA) fell -49% Friday, Sales Force fell -13%, Pandora -10%, Facebook -5.8%, Splunk -23% and Twitter fell another 7%, down -% in 2016. Oil rose +0.36%, gold continued its ascent closing at $1,174.10, up +1.42%, and silver jumped +1.51% to $15.03. The quiet melt down on tech stocks is starting to feel like the 1999-2000 tech bubble.

Bear Markets

One of the rules I learned from the pit bull is that the markets tends to rally early in the week and early in the day, and that's exactly what happened this week; the S&P rallied early in the week but fell apart late in the week. This has been the pattern recently as 6 of the last 9 weeks saw weakness after Wednesday, and 5 of the last 7 Friday's having closed lower. I wrote and Opening Print earlier in the year that pointed to the 1580 level as a possible downside objective, and while it's still far off, I have to admit the overall tone of the market, and the inability of the S&P to hold the rallies. ESH 1900 is a concern.

While I know that most people do not think much of the word "recession", global yield curves are starting to point in that direction. Yield curves in the US, UK, Japan, Germany and Canada are flattening across the developed world. In the past when this would happen it was a good way to track a recession(s), but the question is, will it follow through on its historical prediction powers? Normally shorter term bonds yield less than longer term bonds, however, based on the curve it's simple to asses that shorter term yields are much more in demand. Investors who have ridden the high wave of equity market excellence in recent years are now more eager to protect against greater uncertainty in the world while the United States Federal Reserve is implementing a tighter policy and giving no more free rides. The reality of the "new world trading order" is the we live in a risk on/risk off environment, and since the FED has neared the rate hike and since raised, the market right now is risk off.

In Asia 6 out of 11 markets closed higher (Shanghai Comp -0.63%), and In Europe 12 out of 12 markets are trading lower this morning (DAX -3.1%). This week's economic calendar includes 17 economic reports, 4 Fed speakers, 6 Treasury auctions, and 4 T-Bill announcements. Today's economic calendar includes the 4-Week Bill Announcement, 3-Month Bill Auction, 6-Month Bill Auction.

Oil Under $30.00

Our View: The S&P futures, that traded up to 1884.40 on Globex, reversed lower as crude oil dropped back down to the $29.50 level and traders rushed to the safety nets; bonds, gold and the yen. The overnight sell comes off the heels of the indexes seeing their largest weekly drop in over a month. This week has another busy economic and earnings schedules, but all eyes will be on Federal Reserve Chairwoman Janet Yellen on Wednesday and Thursday, when she testifies before Congress about the economy and monetary policy. Last Friday's lower than expected drop in the US non-farm payroll could bring up a lot of questions about the path of future rate hikes. Our view is to buy the early weakness and sell rallies keying on the 1933-1938 level as key support. As bad as the markets are, don't forget about the PitBull Thursday / Friday low the week before the February options expiration.

  • In Asia 6 out of 11 markets closed higher: Shanghai Comp -0.63%, Hang Seng +0.55%, Nikkei +1.10%
  • In Europe 10 of 12 markets are trading lower: CAC -3.14%, DAX -3.23%, FTSE
    -2.28% at 6:30am CT
  • Fair Value: S&P -5.82, NASDAQ -5.85, Dow -72.69
  • Total Volume: 2.3mil ESH and 7.9k SPH

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

@MrTopStep