GAS LEFT IN THE S&P TANK? FOUR TRADING DAYS TO T+3

MrTopStep.com

The S&P futures jumped to a new high for the year Wednesday, taking back almost all of last week's losses until late in the day, when the broader market imbalance came in at only $270mil to buy and Oracle missed on sales.

In the S&P futures on the CME floor it was a “back and fill” type trade until just before the Fed headlines at 1:00, just after the contract started trading back up to its highs. In the nearly 5-1/2 years since the onset of the credit crisis the stock market has replaced over $10tril in market cap, up 192% from the bottom and up 130% from the March 2009 lows. The broad-based equity rally has had the constant support of the Fed quantitative easing programs. Since 2008 and the start of the programs the Federal Reserve has pumped more than $2.3trillion back into the economy.

Yesterday the S&P futures climbed to a new yearly high at 1555.50 and within reach of the Oct. 9, 2007, highs. Everything seemed to be going fine until 2:30, when Brian Coolie, a top step broker in the S&P pit, started selling the SPM in the pit. By the time the 2:45 cash imbalance showed only $270mil to buy Coolie had sold over 1,500 and sold another 500 going into the 3:00 cash close just as Oracle’s sales/profit miss hit the tape, sending the S&P futures back down to the 1549 area on the close.

According to David Bianco of Deutsche Bank AG, NY-based equity strategist, since 1945 the S&P 500 has climbed for 30 additional months after exceeding a previous record; the average gain during the period was 59 percent, or 18 percent annualized. On Bianco’s March 8 note he said there have only been three bull markets that have lasted less than a year after exceeding new highs -- 1972, 1980, and 2007. If history is indeed a guide to the future, it could be the current rally is not over. We do not think the rally is over. Maybe the S&P pulls back today, but with 7 trading days left in the quarter and T+3 on tap next week, we just don’t think it’s ready to give up.

Our view: Yesterday was a great example of what can happen as the S&P approaches its all-time highs. Bullish? Yes, but that also comes with a note of caution. With the headline news reappearing out of Europe again and the the S&P up 130% from its March 2009 lows, you would be crazy not to be cautious. Our view is it’s possible we see some type of early pullback and then rally again. Let the sellers get short and put in their buy stops. As always, keep an eye on the 10-handle rule and please use stops.

  • It’s 7 a.m. and the ESM is trading 1548.75, down 1 tick; crude is down 30 cents at 93.20; and the euro is down 27 pips at 1.2927.
  • In Asia, 7 out of 11 markets closed lower (Shanghai Comp. +0.30%, Hang Seng -0.14%, Nikkei +1.34%).
  • In Europe, 8 out of 10 markets are trading lower (CAC -1.14%, DAX -0.92%).
  • Today’s headline: “S&P Futures Seen Lower Ahead of Key US Data”
  • Total volume: 1.79mil ESM and 12k SPM traded.
  • Fair value: S&P -2.66, NASDAQ -14.71
  • Economic calendar: Jobless claims, PMI manufacturing index flash, FHFA home price index, existing home sales, Philadelphia Fed survey, leading indicators, natural gas inventories, Fed balance sheet/money supply and earnings from Lululemon Athletica, Ross Stores, KBHome, Nike, Micron.

MrTopStep Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-3-20-2013

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

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