S&P Broken Range; NASDAQ Worst Day Since 2011

Danny Riley
April 11, 2014

The end of the best 6 months for stocks and the old adage of selling in May is showing up early. After a 180% gain since March of 2009 the markets are starting to show some stress cracks.

image03 S&P Broken Range; NASDAQ Worst Day Since 2011
image03 S&P Broken Range; NASDAQ Worst Day Since 2011

The ugly facts

The Dow Jones Industrial Average [DJI:^DJI] fell 267 points or -1.62%, its worst point and percentage decline since February, and is now down -2.45% YTD but only -2.5% off its record high made at the end of December.

S&P 500 [SNP:^GSPC] fell 39 points or -2.09%, posting its largest loss since Feb. 3, and closed below its 50-day moving average for the first time since Feb. 10. The S&P is down -0.83% YTD and 3% off its record high made earlier this month. The S&P was up 30% in 2013, up 13% in 2012, unchanged in 2011 and up 13% in 2010.

The Nasdaq Composite [^IXIC] fell 129 points of -3.1%, down 7% from its closing high set on March 5, and is now down -2.93% YTD. All stocks in the Nasdaq 100 closed at a loss with the exception of one stock. The biotechnology index .NBI fell -5.6%, its biggest one-day loss since August 2011; the index has now fallen -19.3% from its all-time high made on Feb. 25.

VIX, a measure of investor fear, gained 15%

The index markets are seeing some of the largest moves in over 2 years. Unlike last year when the S&P started going up and kept going up, this year has proved to be a bit more challenging. The up and down “chop” has not only made it hard for the smaller investor but the losses are also starting to pile up in some of the biggest and brightest hedge funds in the business.

Yesterday the S&P [CME:SPM14] made a high of 1866.50 retesting Wednesday’s highs 1866.50 and failed. We called for selling the earlier rallies and buying weakness that the S&P would trade sideways to lower. We nailed the first part, but once the S&P started going down it didn’t stop. In the room I said that the S&P was in a trading range of 1830 to 1890 but never in my wildest dreams did I think the S&P would dump handles and break through major support at 1830-1833.

Thats how it works; as soon as you think something can’t or won’t happen, it happens. After the low the ESM14 rallied back up to 1841 going into 1:30 CT, the ESM started tumbling again, trading all the way down to 1823.75 and bouncing up slightly into the close.

Something’s changing

We all know how 2013 started and ended. Sure there were some selloffs and rallies, but the first 3-1/2 months of 2014 have seen big daily moves. The following are just some of the larger daily net changes of the S&P futures this year. You can clearly see something has changed …

ES 06 14 Daily 10 14 2013 4 11 2014 1024x546 S&P Broken Range; NASDAQ Worst Day Since 2011
ES 06 14 Daily 10 14 2013 4 11 2014 1024x546 S&P Broken Range; NASDAQ Worst Day Since 2011

January’s biggest net changes:

Jan 2 -14.5, Jan 13 -22.6, Jan 4 +18.8, Jan 23 -14.4, Jan 24 -42.1, Jan 29 -17.1

Feb 6 +22.6, Feb 7 +26.9, Feb 11 +18.9,

Mar 3 -14.5, Mar 4 +28.5 , Mar 17 +17.8, Mar 26 -16.7, Mar 31 +14.2

Apr 1 +13.3, Apr 4 -22.9, Apr 7 -22.0, Apr 9 +18.9, Apr 10 – 37.7

I didn’t include the other 13 10 to 13+ handle moves. The point I am trying to make is that while the S&P may be teetering between being up or down 2 or 3% there has clearly been an expansion of the ranges. This shows up even larger when you look at the Nasdaq futures [CME:NQM14] net changes.

Date Net Chg.
1/30/2014 28.75
2/3/2014 -71.75
2/6/2014 41.75
2/7/2014 70.5
3/4/2014 48.25
3/13/2014 -55.25
3/18/2014 43.5
3/21/2014 -52.5
3/26/2014 -51
4/1/2014 64

The banks

Today’s trade is going to have a lot to do with this morning’s bank earnings from JP Morgan Chase and Wells Fargo, with Citigroup and others to follow next week.

The Asian markets closed mostly higher and the European markets are mixed to slightly higher. Today’s economic calendar starts with PPI-FD and consumer sentiment.

Our view

The markets acted terribly yesterday. The sellers came back in force and today is going to put the PitBull’s rule about the Thursday / Friday the week before the expiration to the test. You never know when the tide will change, but if this decline is anything like the most recent ones the S&P could be going back up, that is how fickle this has become.

One thing that is starting to scare me is how hard the S&P can sell off in one day, and I wonder what will happen when it keeps going someday. That is why, up or down, I still want to have some type of downside put protection. Personally I prefer buying the cheap puts.

We suspect there will be a retest of yesterday’s low, but if the S&P trades down in Globex and gaps opens above it could be a signal that it is going back up. The real key to this is watching the Nasdaq; it has been the leading index for the last several weeks. Sell the rallies with tight stops and look for a bounce later in the afternoon.


As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.


image00 S&P Broken Range; NASDAQ Worst Day Since 2011Webinar Tomorrow at 11AM CT!

From Danny

This weekend’s webinar with Jeffrey Hirsch is what I consider a “special event.” Jeff and I have become good friends over the years and he knows how much I respect the work he and his father do.

Like it or not. historical stats are part of the markets. I have learned that on those few days I don’t keep up with the Stock Trader’s Almanac I always end up regretting it. Additionally, Jeff and I are like two bulls in a china shop. So please sign up for Saturday’s webinar, it’s going to be both educational and fun.

End of the Best 6 Months for Stocks — An open discussion on where stocks are now and where they are going

  • Midterm Election Year History & Tendencies
  • End of the Best Six Months Strategy
  • Sell in May but Don’t Go Away
  • Q2/2014 Outlook
  • Summer Shorts
  • Sector and Commodity Seasonal Set-Ups

As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.

  • In Asia, 10 of 11 markets closed lower: Shanghai Comp. -0.18%, Hang Seng -0.79%, Nikkei -2.38%
  • In Europe, 12 of 12 markets are trading lower: DAX -1.85%, FTSE -1.23%
  • Morning headline: “S&P 500 Futures Little Changed Before Bank Earnings”
  • S&P Fair Value: 1826.48 (futures 7.98 lower at 1818.5 as of 7:19AM CT)
  • Total volume: 2.37M ESM and 11K SPM traded
  • Economic calendar: PPI-FD and consumer sentiment
  • E-mini S&P 5001829.25+4.75 - +0.26%
  • Crude103.15-0.90 - -0.86%
  • Shanghai Composite0.00N/A - N/A
  • Hang Seng22671.26-367.541 - -1.60%
  • Nikkei 22513996.81+86.649 - +0.62%
  • DAX9323.88-15.29 - -0.16%
  • FTSE 1006585.79+2.03 - +0.03%
  • Euro1.3801
 S&P Broken Range; NASDAQ Worst Day Since 2011
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S&P Broken Range; NASDAQ Worst Day Since 2011