As traders we are geared to roll with the punches. Whether it’s an out-of-line economic release, a weaker-than-expected jobs report or a sudden geopolitical crisis, you have to expect the unexpected even as you follow the trend. Over the last 5 years and especially the last 3 years of the bull market, traders have grown accustomed to the idea that in a zero-borrowing-cost world all news is good news. But how long can that work?
The S&P has a recent history of rallying in response to negative news. A recent example would be the downing of the Malaysian airliner by the Russian separatists in eastern Ukraine. The S&P sold off and was going back up soon after. Up to this point the S&P has been bulletproof, but it has a lot to deal with in the coming weeks.
I may not be your ace chartist, but that does not mean I don’t look at the charts. What I see is a long line of failed rallies. Over a week ago I pointed out how it didn’t matter if the ESU was opening higher or lower, on the 8:30 open a big sell program proceeded. Last Friday the S&P cash (^GSPC:SNP) fell 0.6% to 1985.54, falling 1.1% for the week and snapping a five-week winning streak and closing at its lowest level since Aug. 19. The other odd thing is that despite all the lower closes, the MOC buyers continue to appear on the close.
This week is going to be pivotal for the S&P. There is a tidal wave of news and events facing the S&P 500 this week and right into the end of the month and end of the quarter.
Over a month ago I said I thought the S&P would get past the September Quadruple Witching and then start to see some selling in October and then a push back up to 2100, but that selling started last week.
I still feel that way, but I am concerned about the current weakness and the spike in bond yields, which continue to spook investors. The 10-year yield was as low as 2.32% on Aug. 28 and jumped above 2.6% for the first time since early July last week.
The Asian markets closed mostly lower and in Europe 10 out of 12 markets are trading lower. The week’s economic calendar includes 15 separate economic releases, 14 T-bill and T-bond announcements or auctions and the Fed’s two-day FOMC meeting. Today we have the Empire State mfg survey and industrial production, plus earnings from Analogic Corp. (NASDAQ: ALOG) and Student Transportation Inc. (NASDAQ: STB).
Our view: I am not afraid to say I have been off my game. In fact, two days last week I bought the ESU14 on the declines, had 10 handles on one trade and 8 on the other and because I thought they were going to keep going up I didn’t get out. I made a small profit on the first trade and ended up getting stopped out on the second trade. That is not the way to manage positions and I could kick myself for not taking profits.
The overall price action of the S&P has been dominated by index arbitrage sell programs. Despite what looks like big downside volume, most of the increased volume is coming from the September-December spreads and Globex.
There is a lot going on in the markets right now and this week is going to be somewhat of an overload. The question this morning is, will the overnight lows of 1968 in the e-mini S&P, 16839 in the Dow, and 4035 in the Nasdaq hold as a delayed instance of the PitBull’s Thursday/Friday low?
Mutual Fund Monday has been up 18 of the last 22 Mondays and according to the S&P cash study the S&P has been up 17 / down 12 of the last 29 occasions.
The Thursday/Friday Flunk-A-Dunk
As always, please use protective buy and sell stops when trading futures and options.
- In Asia of 8 out of 11 markets closed lower: Shanghai Comp. +0.31%, Hang Seng -0.97%, Nikkei CLOSED.
- In Europe 10 of 12 markets are trading lower: DAX +0.13%, FTSE -0.22%, MICEX -0.21% at 6:00 am
- Fair value: S&P -8.43, Nasdaq -9.28, Dow -87.72
- Total volume: 1.25mil ESU, 36k SPU, 1.86k ESZ and 31k SPZ traded
- Economic schedule: Empire State Mfg Survey and Industrial Production. Earnings from Analogic Corp. (NASDAQ: ALOG) and Student Transportation Inc. (NASDAQ: STB).