Below is a transcript from Monday's Morning Market Hit video above.
Welcome to Shortview Trading. My name is Chris Watling. I'm the CEO and Chief Market Strategist of Longview Economics and Shortview Trading. It's early morning London time, around 9:00 a.m. on Monday, 3rd of June, and this is your morning market hit.
In this video, we're going to dig into what you should be looking at if you want to trade equity index futures.
If you want to move long or short S&P 500 futures, NASDAQ 100 futures, or FTSE futures, what factors should you be thinking about?
What should you take into consideration as you go about making your decision on how to trade the market on that 1 to 2 week time frame?
In the context of that price action, if you look at the S&P 500 on a sort of multi-week, multi-day basis, the question you have to ask yourself is, last week, was the market rolling over? Did the market start to roll over after the strength we saw in the first half of May?
Remember, on CPI day on the 15th of May, the S&P popped nicely higher as CPI came in lower than expected, and therefore some rate cuts could be priced back into the interest rate curve and equity markets could rally as a result.
But that rally on the 15th of May took the S&P 500 just above its highs from the 1st of April, testing that key resistance level put in place on the 1st of April.
After that, the market tracked sideways, stalling for the next few trading sessions and trading in a very narrow range, really from about 5300 to 5350 for the next three or four trading sessions.
Then, of course, one wondered whether the market was consolidating its gains or about to start rolling over. On Thursday, the 23rd of May, we started to answer that question. As you can see on that chart, on Thursday, the 23rd of May, we started to break that 5300 level, questioning the upside momentum.
Then, of course, last week, bond yields backed up at the start of the week, pressurising the equity market and pushing it even lower, breaking below the lows of the 23rd of May. So it looked very much over the course of most of last week that the market was rolling over, with the S&P starting to move significantly to the downside.
Finally, we get into Friday's trading session, and what a dramatic session it was. It started with some very poor macro data when the Chicago PMI index was released, coming in much worse than expected with a 35 handle, much below normal levels and what was expected as per the consensus.
As you can see from the chart, 35 generally means recession from the Chicago PMI. That was a very dramatic data point. The market sold off initially on Friday but couldn't follow through.
Despite the weak momentum to the downside in the earlier part of the week, the S&P 500 couldn't follow through even on the back of a very weak Chicago PMI data point.
As you see on the chart, the market rallied aggressively, reversing sharply on Friday, picking up from that weak level post-Chicago PMI, rallying around 2% over the last hour or two of trading into the close, up 100 points on the day.
The index put in a bullish key day reversal.
A key day reversal is when an equity market opens below the prior day's lows and closes above the prior day's highs. In other words, it tries to sell off, doesn't work, rallies aggressively, and you get a short covering rally as we saw on Friday, closing above where it was on the prior trading session.
When it's from lows to highs, that's bullish; the other way around, it's a bearish key day reversal. Friday's was a bullish key day reversal. The price action changed dramatically on Friday, with momentum changing dramatically in the last couple of hours of trading.
This week's going to be really interesting, particularly because it's a big data week from the US.
It's the first week of the month, so you've got ISM Manufacturing today. What will that be like post-Chicago PMI? And all the way through to Friday's nonfarm payrolls, there's a lot going on that might move bond yields and equity markets.
To see how we're playing this, please see today's Daily Risk Appetite Gauge. If you want to take a trial, simply click on the link below.
In our Daily Risk Appetite Gauge product, we look at the context of the market's price action, consider all our short-term 1 to 2 week market timing models, update the key ones, show you the interesting ones, and give you an explicit recommendation on how to trade equity index futures on that 1 to 2 week time frame.
Typically, we focus on S&P 500 index futures, but sometimes NASDAQ, FTSE, DAX, and other equity index futures.
To take a trial, please click on the link below. If you're a subscriber, it will have been in your inbox and gets into your inbox by 8:30 a.m. or 9:00 a.m. London time each and every business day.
What are we watching this week in terms of key events?
As mentioned, there's a lot of data from the US. It's the first week of the month, so it's big macro data with ISM services and non-farm payrolls, also JOLTS and other bits and pieces. That's the first key theme.
The second key theme is the ECB's policy meeting announcement on Thursday. The central bank is announcing its monetary policy decision, widely expected to start its rate-cutting cycle, and the press conference will be watched closely.
In the UK, we have the BRC retail sales, which isn't normally a big feature but was very weak last month, so it needs to be watched closely. Also, German factory orders in the middle of the week.
That's it from us. That's your morning market hit for Monday, 3rd of June. Thank you for listening. Please do subscribe to these videos on YouTube, simply click on the subscribe button, or like and share on social media, or follow us on Facebook, LinkedIn, and Twitter. Thank you for listening. Stay safe and trade up.
FIG 1: S&P500 futures 30-day tick chart
FIG 2: S&P500 futures candlestick shown with its 50-day moving average
FIG 3: Chicago PMI chart with recession bands
