Let’s face it, the world has changed a lot since the onset of the subprime credit crisis in 2007. The big stock market drop scared many investors out of the markets. The demise of Bear Stearns and Lehman has had lasting effects that many investors will never forget. Yes, the S&P is up over 130% from its October 2009 lows, but the rally has not convinced the public.
73 trading days:
Seventy-three trading days into the year, the S&P is finally starting to show some signs of tiring. One would expect it after such a big push up. But something else has happened lately too. There have been more down days recently and the size of the drops has increased significantly. Volumes have picked up as well -- yesterday the CME Group’s (CME) e-mini S&P traded nearly 3 million contracts. Index option volumes have also soared.
Good news / bad news
We live in a world of good and bad news and currently it is moving more to the bad side. Constant bad news out of the EU, daily threats out of North Korea, the tragic Boston Marathon terrorist attack and a very overbought and overextended stock market have created unstable market conditions.
Less demand :
Crude oil down to the lowest level all year, mammoth gold and silver liquidation, continued weakness in the commodities and large rotations in and out of different stock sectors spell liquidation. Generally when things start moving around the way they are, it means that the “smart money”is selling.
S&P head & shoulders - It’s clear to see in today’s chart that a head and shoulders pattern has developed in the S&P futures. There have been other chart setups that have been similar but up to this point this is the only one that has formed after a new contract high and a shift in sentiment. While the S&P is still way off from a bear market, it does seem like traders are being more cautious. Does all this mean the upside party is over? Not necessarily, but like we said above, the size of the declines and downside volumes have been increasing.
Our view:
It’s the April expiration and volatility is up. The sellers are back, but the big question is, is this the beginning of a real correction or just another pullback on the way back to new highs? If we know one thing it’s that the public is scared. Every unattended package is a bomb scare and every time stuff flashes on the TV the S&P goes sell. Our view is that the markets look bad but that doesn't mean they can't bounce. Also, in the world of “up a day, down a day” in the S&P during the expiration ... today is up. You take it from there. As always, keep an eye on the 10-handle rule and please use stops.
- It’s 7:15 a.m. and the ESM is trading 1552.25, up 6.25 handles; crude is up 1.29 at 87.97; and the euro is up 33 pips at 1.3053.
- In Asia, 7 out of 11 markets closed lower (Shanghai Comp. +0.17%, Hang Seng -0.26%, Nikkei -1.22%).
- In Europe, 10 out of 12 markets are trading higher (CAC +0.71%, DAX +0.44%).
- Today’s headline: “S&P Futures Rebound After 1.43% Drop”
- Total volume: 2.96mil ESM and 15.6k SPM traded
- Economic calendar: Jobless claims, Narayana Kocherlakota speaks, Philadelphia Fed survey, leading indicators, EIA nat gas report, Sarah Bloom Raskin speaks, Fed balance sheet and money supply
- Fair value: S&P +4.34, NASDAQ +10.22
- MrTopStep Closing Print Video:
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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DISCLAIMER: The information and data in the above report were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities.
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