5 Trading Days Left in January
As the snow storm rolled into the northeast more traders dropped off line last Friday. By Sunday morning more than 11,000 flights had been canceled between NY and Washington. With over 20 inches of snow falling in Manhattan, and many of the surrounding areas seeing as much as 1 to 3 feet of snow, today's trade may be a little more subdued as the weather will no doubt still affect business.
Despite the 'extreme' weather on the East Coast it's not going to stop the nearly 250 companies in the S&P from reporting earnings this week. The deluge in companies reporting will include some heavyweight tech stocks such as APPLE (APPL), Amazon ( AM ), FaceBook (FB), and Microsoft (MSFT), as well as other benchmarks such as Boeing (BA), McDonald's (MCD), Mastercard (MA), Alibaba (BABA), Johnson & Johnson (JNJ), Caterpillar (CAT), and energy stalwarts Chevron (CVX) and Hess (HES), as well as many other noticeable stocks.
What are traders thinking and talking about right now?
In my mind, crude oil has helped the S&P move back up, but there are still a lot of outside forces at work that could push the energy markets back down and take the broader indices with it. I believe there is less concern over China's plight then there was a few weeks ago. Most traders in the US are more zeroed in on the energy markets and the US earnings season which will be in full force this week, and thus far have have been reporting slightly better than expected. Is the S&P making a short term low? Is it a tradable bottom? So far it looks that way but with the VIX still trading above $22 things can change fast. Sure the EU and Mario Draghi are talking more stimulus but so far the efforts have done little to support the European markets. Will this push the Fed away from its push to raise interest rates this year? Only a few weeks ago Fed members and analyst were anticipating 4 rate hikes in 2016 but the CBOT's Fed Fund Rate Futures are now showing only one rate hike this year. All of this uncertainty can only spell one thing, volatility.
In Asia, 11 out of 11 markets closed moderately higher (Shanghai Composite +0.75%), and in Europe 8 out of 12 markets are trading slightly lower (DAX -0.01%). The weeks economic calendar includes a total of 18 economic reports, 11 T Bill or T Bond auctions or announcements, the FOMC minutes from the December meeting, US GDP and a tsunami of earnings reports. Today's economic calendar includes The Dallas Fed Mfg Survey and a 3 and 6 month T bill auction.
Our View: Provided the Asian and European markets do not get hit by a new wave of selling, we project that more upside exists in the equity indexes. Initially we are looking for the 1910-1920 area in the S&P 500 futures. Right now the buy stops far outweigh the sell stops leaving the risk to the upside as there could be another push higher into those stops. However, we can not rule out some small pullback or even a broader sell off before or after the ES rallies. There are just too many moving parts right now to declare either direction with extreme conviction.
As always, please use protective buy and sell stops when trading futures and options.
Mr Top Step
