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Futures reverse gains on weaker GDP report

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Stock futures have reversed earlier gains after the release of this morning's gross domestic product (GDP) report from the U.S. Commerce Department.

Economists were looking for second-quarter growth of 2.4%, but the advanced GDP report shows that the economy grew at a more modest 1.1% annual pace. In addition, first quarter GDP was revised lower to 5% growth from the preliminary 6.1%.

The action in both the Treasury and stock futures markets has been interesting as we have seen weakness in stock futures and some strength come into bonds. Both instruments reversing course after the release of the GDP data.

S&P futures (sp02u) are currently trading down 4 points at 901.50. NASDAQ futures are lower by 13 points at 967.50 and Dow futures are down 24 points at 8,670.

Fair value for the S&P 500 today is $0.78. That price will not change during the day. HL Camp & Company has their computers set for program buying at $1.72 and set for program selling at $-1.64. Fair value for the NASDAQ-100 today is $2.80.

I would currently advise traders some caution in a "rush to judgment" in their early morning trading on the thoughts of broader downside action. I'm watching the 10-year YIELD ($TNX.X) start to see some selling and YIELD has edged right back to the unchanged levels. In essence, a trader may not necessarily want to put on 5 bearish trades right at the open. Instead, ease into any positions as the bullish % data continues to see some internal repair.

10-year YIELD chart - 5-minute intervals

I like watching the bond market's response to economic data in the early going. The 10-year YIELD actually saw some selling in the early morning after its open for trading. That sharp move lower in YIELD indicates BUYING in the bond, but note the modest recovery back higher. While bond traders will indeed be keeping an eye on stocks at the open, the early response from the bond market doesn't look like one of panic buying. Perhaps Monday mornings bond market action was more indicative of "panic" in the bond market. Look at that rather large gap higher in YIELD! That helped fuel Monday's stock market rally as a lot of cash came out of this Treasury bond that day.

Jeff Bailey
Senior Market Technician
Option Investor

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