Markets making new highs? Buy, hold or get out of the way (… and the MiM killed it today!)

Market Recap

Market RecapCollective Intelligence!

“How Washington is killing the economy” – The most recent slowdown, highlighted by poor job growth, softening corporate earnings and decimated confidence, comes just as Republicans and Democrats prepare to square off in a fresh fight over the federal budget with another potential shutdown looming in January and a renewed debt ceiling crisis possible in February.

September durables orders check in +3.7% after +0.2% Aug, continuing the upward move as expected (up in 5 of last 6 mos). Boeing Corp had 127 new orders vs 16 in Aug, so no surprise that the move was led by +57.5% nondefense aircraft orders. Orders ex transport were -0.1% in a 3rd drop, and orders ex defense were +3.2%; these show core weakness centered in machinery -1.8% and electronics -0.3%. Motor vehicles were -0.3% but prim metals +2.7% and computers +0.6%. Shipments were +0.2%, Inventories +0.9%. NDCG shipments +0.4% in 2nd gain, but Q3 avg suggests only modest capX.

EUR Despite another disappointing data release (this time German IFO), the euro impressively remains at elevated levels, holding onto its recent gains. We remain a bit long for all of the same reasons but are cognizant that going into the weekend the market may try to take some chips off the table, especially with US corporate supply a constant overhang ahead of month end.

Today started with 175k ESU and 600 SPU traded on Globex, the December big S&P 500  trading range was 1749.80 – 1743.00. Thursday’s regular trading hours (RTH’s), pit session trading range was 10 handles wide, 1750.30 – 1740.50, before settling at 1748.50, up 6.7 handles. As always, keep an eye on the 10-handle rule and please use stops when trading futures and options. Yesterday’s post-close earning surprises by [MSFT] and [AMZN] added overnight support, but the liquidity drain in China continues to undermine price stability. The chinese monetary authorities have stood by while the renminbi has reached another new high against the dollar. The Chinese monetary policy has led to the ongoing, albeit slowing, currency / FX realignment. China chatter – the PBOC may be willing to resume open market operations next week if rates rise too much…

Coming into this morning, 44% or 212 of the S&P 500 companies have reported. 68% have reported positive surprises. Expectations were lowered coming into the earnings season as global growth continued to stumble along. Tony LaPorta offered: In my mind nothing has changed. Do not get in its way today. NQZ is trading at new 13-yr highs. ESZ is 4-5 handles away from new all-time highs. There is a reason a market trades at new all-time highs. You do not sell new all-time highs …YOU BUY THEM.

Today’s open outcry pit session opened 1.5 handles higher at  1750.30 – 1750.00, traded a low of 1749.00 before grinding up to 1753.00 at 9:00 – just shy of Tuesday’s 1754.30 weekly/all time contract high. At 8:55 Michigan sentiment for Oct. checked in at 73.2, below exp of 74.8, and the S&P rallied to a new intraday high before fading back to 1747.50 and bouncing up to 1751.50 area, briefly breaching the opening range at 10:32. The following midmorning back and fill was in part due to iceChat (10:40) FYI – there seems to be network problems on the trading floor as well as some of the offices – even a dedicated bloomberg line is out…some of our desk platforms are down – leaving us to call the back office to manually cxl / change electronic orders – hearing this outage may be an CME / exchange level problem. Traders are flattening out / canceling orders. CME floor traders lost internet/phones and some trading platform access for about 30 minutes.

Following the glitch, the S&P traded a new intraday low of 1747.00 at 11:14 before trading sideways to slightly higher in light Friday volume as traders once again cut the week short by exiting early. The equities took a nap today as the opening range (OR) was capping the midday trade until 1:00 when a small buy program breached the OR, electing small buy stops – falling short of the morning high and then sat on top of the OR.

The SPZ was trading in the 1751 area when the early look of the closing imbalance came in: (14:00) MiM – MrTopStep Imbalance Meter showed 78%, a modest $259M to the buy side, followed by a large jump at (14:20) 89%, $1.14B, then at (14:40) 91%, $1.3bil to the buy side. At 2:47 the SPZ was trading 1753.50 (new high at 1754.00) area when the imbalance showed BUY: $1.35billion to buy to $1.7bil to buy. The cash close traded the 1754.30 area before settling at 153.907, up 5.4  handles on the day.

In closing all we have to say is the MIM ROCKED!!!!!!!

Econ data: Industrial production data exp 0.4, capacity utilization exp 78.0 and pending home sales exp -0.1.

Earnings pre-market: [AWI], [BIIB], [BOH], [CNA], [ROP], [KDDI], [L], [MCY], [MRK], [ROP], [SOHU], [TEN], [TNT].

It’s really unbelievable how the HFTs are gaming the system with quote streams. The brown line: total number of stock and index option quotes for each trading day. Scale is in billions! Blue line: total option volume traded each trading day (it’s practically invisible at this scale).

Year end: The odds now favor the economy accelerating into the final quarter, similar to what we saw in 2010-2012. In each of those years, the economy slowed in the summer; we also saw that this year, but to a lesser effect. An important difference this year: The FOMC backed off on rates early on and rates declined. As a result, the economy was starting to re-accelerate until the shutdown. But, the shutdown is now behind us, and with tapering delayed, the stock market is rallying as it did in 2010/11/12. Thus, it appears that the economy is likely to again accelerate in the final quarter.   Also, you may find this interesting  Anyhow, I thought it was interesting because we suspect sell-side equity strategists will latch onto this theme as we approach the calendar turn …

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