S&P 500 FUTURES: ‘ALL YOU GOTTA DO IS …

MrTopStep.com

The S&P 500 futures edged higher yesterday for the fifth trading day in a row. So far this year the S&P has also closed higher 11 out of the first 14 trading days and 8 out of the last 9. It has not even been 15 trading days since the S&P snapped a five-day losing streak after the fiscal cliff agreement and there has been no letup or pullback since the rally began.

In January of 2012, the S&P came flying up out of the gate and didn't stop going up until April 2. After being up over 12% in the first quarter, the S&P gave back most of its gains before closing up 13.4% on the year. Yesterday the S&P extended its recent push to new multi-year highs. The low volumes again led to an early selloff, and after holding at the 1476 level the S&P back and filled as it waited on another big buy-side imbalance.

Going into the 3:00 cash close a buy program hit the S&P futures, pushing it to the highest level since December of 2007. The S&P futures traded near flatline for most of the day but the markets firmed up late in the day and rallied even further after Google announced its fourth quarter earnings. The overall tone and price action of the S&P remains very firm. The pattern has been for an early pullback and then the slow grind higher accompanied by oversized buy imbalances. The SPH net change chart for the first 14 trading days of the year shows a pattern of big up days followed by minor pullbacks. Since making its low on December 28 at 1382.25 to yesterday's high at 1490.25, the ESH is up 108.25 handles.

Yesterday GOOG jumped 5% in premarket trading when the company reported earnings and revenue that that exceeded forecasts and IBM jumped 4% when the company beat fourth-quarter sales and forecast. Names reporting today include McDonald's, Netflix and Apple. Recently Apple has been under pressure due to its iPhone sales. While expectations for today's earnings vary, most forecasters expect to see profits drop for the first time in 9 years. With the S&P sitting at new 5-year highs and extremely overbought it's anyone's guess how this will play out after the bell.

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.

Our view: The S&P is extended and it doesn't matter. Any time you use the word "sell" with the S&P futures this year you lose. For the most part our call has been to sell the early rally and buy weakness when it sells off, but the declines are so small it's pitiful. I said a few weeks ago that MSLO (the big local in the S&P pit) said, "With vol this low all you gotta do is just buy the early dip and hold them." It's so stupid it's hard to believe we see the same pattern over and over. Yesterday the SPH took out the 1484-1485 level and made its way up to 1490. We still have 1505 but we don't think that's in the cards today. As always, keep an eye on the 10-handle rule and please use stops when trading futures.

It's 7 a.m. and the ESH is trading 1487.50, down 2 handles; crude is up 4 cents at 96.72; and the euro is up 19 pips at 1.3343.
In Asia, 7 out of 11 markets closed higher. So far this week the Nikkei is down 3.9%.
In Europe, 9 out of 12 markets are trading higher (CAC -0.45%, DAX +0.17%).
Today's headline: "S&P Futures Seen Lower Ahead of Earnings"
Total volume: 1.47mil ESH and 10k SPH traded
Fair value: S&P +0.14, NASDAQ +13.31
Economic calendar: Today: Weekly mortgage applications, FHFA home price index and earnings from McDonald's, United Tech, Abbott Labs, Coach, WellPoint, Amgen, Apple, F5 Networks, Netflix and Sandisk
Mr Top Step Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-1-22-2013
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