The S&P 500 futures fell yesterday as the problems in Cyprus continued to weigh down on the Eurozone and the markets as a whole.
The CME Group’s [CME] S&P 500 futures started the day lower off the heels of a revenue shortfall at Oracle and continued anxiety over Cypriot finances. It was another day filled with European headlines that ended with Standard & Poor’s cutting the country’s sovereign debt rating further into “junk” status going into the stock market’s close.
The SPX has spent the past 10 days trading around 1550, yet it hasn’t managed to “convert” it. While we continue to think higher, we are also concerned by the large number of researchers and investment advisors who are calling for the S&P to trade to 1700 or higher. Currently the S&P is struggling with the 1550 level and what we feel is important is not to forget the 60% decline after the stock market topped in 1999 or the second 60% drop in 2007. While the markets continue to gain support from the Fed QE3+ and the U.S. housing market on the mend, the markets have not powered forward at a tremendous pace. We think the weakness over the last few days is what we call an S&P 500 futures timeout, but as we get closer to the March quarter end we wonder how much buying is left for the end of the quarter. Each time the S&P approaches the old highs there has been a 60% drop, and while the band plays on, we are getting more worried about when the music stops than the S&P going to 1700.
Our view: It’s highly unlikely that the S&P is going to 1600, 1650 or 1700 anytime soon. The higher the S&P goes, the easier it is to sell rallies. Additionally, the buy imbalances have been on the small side. Today we have no economic releases.
It’s 7 a.m. and the ESM is trading 1542.50, up 3.5 handles; crude is up 43 cents at 92.88; and the euro is up 40 pips at 1.2964.
In Asia, 8 out of 11 markets closed lower (Shanghai Comp. +0.17%, Hang Seng -0.50%, Nikkei -2.35%).
In Europe, 6 out of 11 markets are trading modestly lower (CAC -0.13%, DAX -0.03%).
Today’s headline: “S&P Futures Seen Higher After Russian Cyprus Talks Collapse”
Total volume: 1.9mil ESM and 12k SPM traded.
Fair value: S&P +3.20, NASDAQ +8.75
Economic calendar: No economic releases / Fed Speak