Yesterday I was 100% wrong in thinking support would continue to hold. I think it’s important to admit when you were wrong because like anything in life, we learn from our mistakes. My mistake was writing about how negative the price action has been, how the S&P can't hold a rally and -- last but not least -- how the S&P falls apart in the afternoon, and then predicting that a flush to the 1340s was not yet in the cards. Was I paying attention to my own words? Like I said, as the day wears on so does the S&P.
The Obama sell signal
We can't blame the election for all the losses but most of them. Yes, the European Union is still a mess. And yes, the Greeks are on their way to a default. So where is the overall weakness coming from? It’s simple: Smart money is selling. They are trying to lock in profits ahead of the higher tax rate people will have to pay once the fiscal cliff start on Jan. 1, 2013. Long before the election we had a trade called the Obama Sell Signal. It has worked like a charm for years and you don't need any fancy program to make the trade. You want to know how it works? The day of a planned Obama press conference or when you know he’s going on TV, you start selling the ES a few minutes before the president starts talking. It’s worked like a charm in the past and it worked like a charm yesterday. Since the election the S&P is down 5.7% and down over 8% from its highs. Yesterday after the president spoke, the selloff actually accelerated to the downside.
The nation can’t afford deadlock
During President Obama's first press conference since his re-election, he reiterated that he was confident Republicans can work with Democrats to avoid the fiscal cliff. Obama said he was open to new ideas but he also said the modest increase on the wealthy “will not break their backs” and will not impinge on business investment. After his news conference the S&P futures fell another 19 handles.
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.
Since President Obama’s re-election the S&P futures have been down 4 out of the last 6 trading days. The two winning days account for a gain of +2.9 handles and the four down days have amounted to -75.1 handles. Adding to the market’s woes this morning are all the headlines saying the the Euro areas have slipped into a recession for the second time in four years. I thought the markets could rally a bit going into the November expiration, but what I learned yesterday is thinking in this market doesn't pay. You just have to go with the trend until that changes. According to the Ned Davis S&P cash study,Thursday (today) has been up 16 / down 12 and Friday has been up 17 / down 11 of the last 28 occasions. We are leaving it at that. As always, keep an eye on the 10-handle rule and please use stops.
SINCE OBAMA’S RE-ELECTION
Wednesday Nov 7 SPZ -36.1
Thursday Nov 8 SPZ -13.8
Friday Nov 9 SPZ +.40
Monday Nov 12 SPZ +2.5
Tuesday Nov 13 SPZ -7.30
Wednesday Nov 14 SPZ -17.9
- It’s 6:00 a.m. and the ESZ is up 5.57 handles at 1358.75, crude is down 6 cents at 86.26 and the EC is trading 1.2768, up 18 ticks.
- In Asia 8 out of 10 markets closed lower (Shanghai Comp. -1.22%, Hang Seng -1.55%)
- In Europe 10 out of 12 markets are trading lower (CAC -0.19%, DAX -0.50%)
- Today’s headline: “S&P Futures Trade Higher, Fiscal Cliff Looms”
- Economic calendar: Today: CPI, jobless claims, Empire state mfg survey, Philadelphia Fed survey, oil inventories, Fed bank of Chicago annual conf., credit card default rates reported; earnings from Target, Wal-Mart, Viacom, Gap, Dell. FRIDAY: Treasury international capital, industrial production, e-commerce retail sales; earnings from Foot Locker, JM Smucker, Ann Taylor
- S&P futures volume: 2.44 mil ESZ and 12k SPZ traded
- Fair value (7 a.m.): S&P +1.5, NASDAQ +2.5
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