With about 1/3rd of the S&P 500 stocks having reported first quarter earnings and an increase in the S&P 500 forward estimate for 2018, the underlying index is still basically unchanged on the year.
A lot of talk has been circulating that the earnings would help support the equity markets, and that looked to be the case over the last two weeks; but late last week, the index futures gave up to the downside.
Last Friday, I wrote that I was a ‘reluctant’ bull and that my view was to sell the rallies and buy weakness. The first part of that view turned out to be right. There were a few rallies, and the S&P 500 (ESM8) made new lows late in the day and then popped back up going into the 3:15 futures close. However, the overall move was to the downside. I had had a gut feeling, based on Thursday’s weak price action and the stock market being up 10 of the last 13 sessions, that there could be more selling on Friday, and there was.
Now the question is, will that selling carry through this morning and this week? We don't think it will; in fact, we think the ES is going to have an up week.
If the S&P 500 (ES) sells off on Globex and opens lower this morning, we would lean toward buying the open and buying the pullbacks. When the ES sold off late Friday, the DAX only sold off 30 points and is only 100 points off the recent high. Meanwhile, the ES is 88 handles off its most recent high. This means that we think the ES is short-term oversold. Remember what I have been saying in recent weeks - when this market looks strong, that is when it has been selling, and when it looks weak and vulnerable, that is when it has rallied.
The next two days are busy on the economic calendar. Today features the 9:45 and 10:00 a.m. EST numbers and tomorrow’s headliner is the 10:00 a.m. New Home Sales.
- Chicago Fed National Activity Index 8:30 AM ET
- PMI Composite Flash 9:45 AM ET
- Existing Home Sales 10:00 AM ET
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 11:30 AM ET
- 6-Month Bill Auction 11:30 AM ET
- Redbook 8:55 AM ET
- S&P Corelogic Case-Shiller HPI 9:00 AM ET
- FHFA House Price Index 9:00 AM ET
- New Home Sales 10:00 AM ET
- Consumer Confidence 10:00 AM ET
- Richmond Fed Manufacturing Index 10:00 AM ET
- State Street Investor Confidence Index 10:00 AM ET
- 4-Week Bill Auction 11:30 AM ET
- 52-Week Bill Auction 11:30 AM ET
- 2-Yr Note Auction 1:00 PM ET