Friday's Market Review
Friday's auction started out with a bang and ended in the same way. A motivated and initiative buyer entered the market within the first few minutes of regular session trading and over the course of two hours managed to drive the Es from the low-1850s into the mid-1860s. Around midday, when legions of traders generally call it quits to enjoy an extended weekend, news reports began to break that Russia was moving forces into Ukraine. The price action that followed was nothing short of spectacular.
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Over a roughly 90-minute time span, the Es plummeted from the mid-1860s to the mid-1840s. While this slide was impressive, I found the ensuring bounce back above 1860 even more mind-boggling. It's no secret that traders detest outsized exposure over a weekend with readily apparent geopolitical risk. But as prices began to recapture the mid-1850s, there seemed to be a mad rush to put back on the exposure that was shed just minutes earlier. As I think most will agree, Friday's auction was one of the more emotional sessions we've seen over the past few weeks.
Monday's Es Trade
Monday's session gets underway with the 8:30 a.m. EST premarket release of January's personal income and consumer spending figures. Then, at 8:58 a.m., February's PMI manufacturing index is released. Thirty minutes after the RTH open, at 10 a.m. EST, February's ISM manufacturing index and January's construction spending figures are released. Of all the scheduled data, the 10 a.m. ISM index is likely to be most impactful to equity markets.
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Monday's primary areas of interest are expected to be 1853.25 to 1854.25 and 1863.50 to 1864.50. Based on Friday's trading, a directional move is unlikely to take hold and sustain itself until prices are breaking up and away from 1864.50, or down and away from 1853.25. A two-way rotational auction is to be expected between 1854.25 and 1863.50.
The bulls controlled Friday's auction until prices weakened late in the day on reports that Russia was moving forces into Ukraine. Now, as distracting and concerning as the Russian/Ukrainian situation is, I would urge day timeframe participants to approach the short side with extreme caution as (or if) the Es recaptures 1863.50 to 1864.50.
As counterintuitive as this may seem, we mustn't make the emotional mistake of assuming that geopolitical upheaval will result in a widespread liquidation of equities. I will continue to question the sustainability of any advance in the face of a still overbought market. We must pay attention to price and value. The bottom line is that upside breaks from above 1864.50 favor a continued advance.
Intraday scalpers should consider using 1858.75 as their intraday directional pivot. Trading above that level supports buyers and their efforts to chip away at 1863.50/1864.50. Everything beneath it encourages sellers to hammer away at 1853.25/1854.25.
Failure to hold the line between 1853.25 and 1854.25 effectively traps Friday's initiative buyer. All trading beneath 1853.25 will shine a light on 1850 and 1845.25. But in my view, the odds would favor a slide through those levels, and straight down into 1839.75. More aggressive and more responsive buying is apt to become a factor between 1839.75 and 1835. But make no mistake about it, a close beneath 1835 would be an undeniable negative for market bulls.
Current conversion formula: Es (March 2014 contract) value X .100277 = SPDR S&P 500 (SPY) Value
1863.50/1864.50 = 186.87/186.97***
1858.75 = 186.38*
1853.25/1854.25 = 185.84/185.94**
1850 = 185.51*
1845.25 = 185.04*
1839.75 = 184.49*
1835 = 184.01***
1829.50 -- 1830.75 = 183.46 -- 183.58**
At the time of publication Byrne was long April 181 strike SPY puts