S&P 500 FUTURES: UP TOO HIGH TO BUY, TOO FIRM TO SELL

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MTS Opening Print - May 08 2013

The S&P futures have closed higher 11 out of the last 13 sessions. How long can the markets keep going up?

Round and round she goes, where she stops, nobody knows! While we have been bullish all year, not even we can believe how far the S&P has gone. On Dec 28, 2012 the SPZ (DEC S&P) settled at 1406. As of yesterdays 1619.20 high the S&P futures have rallied 213 handles.

Turn-a-round Tuesday
Mondays that started out the year as the weakest trading day of the week have made a comeback. Last Monday’s higher close was the first time this year Mondays have added more up days then down days, and of the 16 Mondays, 8 have closed higher / 7 have been down with 1 unchanged. On the other hand, Turn-a-round Tuesday has been has been the single best best trading day of the week, the month and the year. While we have yet to hear anyone explain the coincidence we think it has to do with mutual fund inflows and how money is put to work in the stock market. Of the 213 handle gain this year, Tuesdays have made up over 50% of this year's gains.

Compared to 1987
While the desk has been part of every major stock market event since 1985 we have never seen a rally like the current one. Everyone knew in 2000 the tech bubble was going to burst. Tech stock valuations were skyrocketing and the NASDAQ was so overpriced, most knew it was not going to end well. That said the S&P is well past its comparison to the 87 Crash and on its way to where the NASDAQ was in 2000 but the difference here is called liquidity and the Fed is supplying it. The S&P has already gone much further than anyone thought but that doesn't mean it can't keep going. It’s when it stops going up that we are concerned about.

Self-corrections
What makes this so hard for the bears is something called “self-correcting”. Whether its an early 10 handle sell off during the day or a 60 handle pull back the S&P always comes snapping back. So far this year there have been 87 trading days, 58 have closed higher, 28 have closed lower, 1 unchanged. Of the 28 down days there have been several 1 days declines, 5 - two day sell declines and no 3 days sell offs. The short sellers have learned a hard lesson this year with the term self-correction as in most cases the S&P makes a new high just a few days after the sell off.

In the end the markets continue to impress on the upside. If you're a seller the lack of any extended declines has made it impossible to remain / keep on any short futures positions.

Our view: While we were right to sell the early rally yesterday, we left out the other side of the trade...buying weakness. The way this works is, the S&P has to rally early and sell off to re-load for the next up move. The early sellers help fuel the markets back up. In a low volume, thin to win environment its hard to keep the S&P going down. Despite not having the other half of the days trade we still think there will be a ‘knock down’ at some point this week. Of the 19 Wednesday this year, 13 have closed higher and 6 have closed lower. As always, keep an eye on the 10 handle rule and please use stops when trading futures.

  • It’s 7:15 a.m. and the ESM is trading 16
  • In Asia, 10 out of 11 markets closed higher (Shanghai Comp. +0.48%, HANG SENG +0.86%, Nikkei +0.74%).
  • In Europe, 11 out of 12 markets are trading higher (CAC +0.78%, DAX +0.68%).
  • Today’s headline: "Global Markets Rise, S&P and Gold Trade Higher"
  • Total volume: 1.5mil ESM and 6k SPM traded
  • Economic calendar: MBA purchase apps, Jeremy Stein Speaks on panel on dollar funding and lending by global banks at Chicago Fed banking conference, API and 10 -Yr note auction
  • Fair value: S&P , NASDAQ
  • MrTopStep Closing Print Video: https://mr-topstep.com/index.php/multimedia/latest-you-tube-videos/danny-riley-closing-print/video/latest/closing-print-5-7-2013


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. {jathumbnailoff}
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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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