With the Asian and European markets down hard overnight and crude oil futures trading down to $53.60 in Globex the S&P 500 futures (ESH15:CME) opened lower, sold off and then staged a mammoth 50.25-handle rally from low to high. After 11 AM CT, the E-mini then dropped, hesitating once at the 1980 support level, then handing back all but a few ticks of the morning’s gains. The E-mini closed down 18.50 points, just a few points above the morning low. The Nasdaq (NQH15:CME) lost 77 points and the Dow (YMH15:CBT) lost 118 points. All three major indices

Most attention is directed to the Federal Reserve’s statement following the two-day meeting which ends this afternoon. One survey finds that four fifths of economists believed the Fed will change its “for a considerable time” language to something more assertive, signaling that rate hikes are coming in 2015. But they also doubt the Fed will want to further upset the stock market when plummeting oil prices and the decaying ruble are already causing so much unrest.

A possible additional influence is the contrarian decision to maintain higher interest rates by India’s central bank governor Raghuram Rajan, a University of Chicago professor and author of the famous paper which predicted the subprime meltdown. India, the third-largest economy in PPP, has managed to control inflation but is still keeping rates high.

Given the widespread expectation that the Fed will want to calm the markets, these expectations are likely to be priced in already. Still, this week will likely continue to be an algo-driven roller coaster.

Algos and program trading run amok

Traders complain but they really never do anything about program and algorithmic trading. Yesterday the algos ran amok in the ES and CL all day long and I could see it in my MarketDelta charts. Thousands of ES and CL futures contracts trading per second. While both floor and retail traders love the increased volatility it doesn’t go without increased risk.

Right from the S&P futures open at 8:30 you could see the algo and program trading moving both the ES and CL lower before both markets exploded to the upside. From the morning low of 1961.50 to 2011.25 the ESH15 rallied 50 handles, from the 2011.25 high the ESH15 sold off down to 1981, -30 handles and from 1981 to 1992 the ESH rallied 12 handles and from 1992 down to 1963.00 for a 28 handles sell off and hundreds of handles in between.

‘Tis The Season

We have seen the S&P (^GSPC:SNP) down in the first half of December in the past, in fact last year was one of those year but we also saw a big year end rally. That is what we think will happen this year too. According to the Stock Traders Almanac next week, the shortened Christmas Holiday week has the Dow up 5 out of the last 6 years with an average gain of +0.4%. Then we have the Santa Claus Rally going into the last 5 days of the year. While no one knows for sure what will happen MrTopStep has been following these seasonal tendencies for the last 28 years with profitable results.

From our friends at Stock Trader’s Almanac: “If Santa Claus Should Fail To Call, Bears May Come To Broad And Wall”

In Asia 7 of 11 markets closed higher and in Europe 9 of 12 markets are trading lower. Today’s economic calendar starts out with day 2 of the Fed’s final meeting of 2014, MBA Purchase Applications, Consumer Price Index, Current Account, EIA Petroleum Status Report, FOMC Announcement, FOMC Chair Press Conference and earnings from FedEx (FDX), General Mills (GIS), Oracle (ORCL), and Jabil Circuit (JBL).

6 Trading Days until Christmas, 11 Trading Days left in 2014

Our view: Around and around she goes, where she stops nobody knows. Well… not really. I am staying with my call that the S&P goes up this week. I am also not veering from my year-end S&P 2100 high with a 2085 settle. Yesterday was the CLF15 futures and options expiration and with it came a big short squeeze. January CL made a low at 53.60 and rallied up to 57.15 before sell back off and settling at 55.93, up 2 cents. Net-net, CL may have put in a bottom for now (down -1.04 this morning). During yesterday’s 50-handle rally a lot of the funds were forced to cover, mostly at bad prices. It’s our guess they sold them back out when the ESH15 fell late in the day. Our view is to sell the early rallies and buy weakness… that said it will be “lights out London” for the S&P should the fed decide to change its policy statement.

“Crude Expiration Squeeze Job”

December S&P Cash Study for the Dec expo.

http://mrtopstep.com/december-expiration-statistics/

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

• In Asia 7 of 11 markets closed higher : Shanghai Comp. +1.31%, Hang Seng -0.37%, Nikkei +0.38%

• In Europe 9 of 12 markets are trading lower : DAX -0.80%, FTSE -0.85%, MICEX -2.43%

• Fair Value: S&P -6.86 , NASDAQ -4.14 , DOW -68.26

• Total Volume: 3.35mil ESH and 4.5K SPH traded

• Economic schedule: Day 2 of the Federal Reserves 2 day meeting, MBA Purchase Applications, Consumer Price Index, Current Account, EIA Petroleum Status Report, FOMC Announcement, FOMC Chair Press Conference and earnings from FedEx (FDX), General Mills (GIS), Oracle (ORCL), and Jabil Circuit (JBL).

• E-mini S&P 5002062.50+2.50 - +0.12%

• Crude55.63+1.52 - +2.81%

• Shanghai Composite0.00N/A - N/A

• Hang Seng23116.631+284.42 - +1.25%

• Nikkei 22517621.4+411.35 - +2.39%

• DAX9786.96-24.10 - -0.25%

• FTSE 1006545.27+79.27 - +1.23%

• Euro1.2233