S&P FUTURES: NOT READY TO SAY UNCLE

MrTopStep.com

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Image: Wall Street Greek

By Danny Riley

The S&P futures had a lot of reasons to sell off yesterday and they did -- on the open, that is. With the ever-looming fiscal cliff only a month and a half away and  the Greeks not getting all the bailout money the government needed, uncertainty runs deep in the index markets.

Over the last several weeks several new patterns have shown up. The big one is the inability of the S&P to hold the rally. The second element is the overall tone. If the markets are up they tend to exhaust themselves in the afternoon trade. As the day winds down, so does the ESZ. The lack of follow-through indicates that there are just not buyers around to support the markets. Yesterday was a perfect example -- after being down 10 handle on the open, the ESZ rallied 19 handles early in the day and sold off 15 handles late in the day.

The markets do not like uncertainty and that is where the stock market is today. With a month and a half left in the year, many traders on the floor are concerned that President Obama is going to stick to his plan to end the Bush-era tax cuts and that the markets are just hanging on until the next piece of bad news hits the tape. Today we have a heavy day of economic releases: the MBA mortgage index, retail sales numbers, PPI, business inventories and the FOMC minutes.

As bad as the price action has been since the election, the S&P does not seem ready to say uncle. The support area we put up in yesterday morning’s call at the 1363 to 1368 is still holding. There has not been an attack on the 1350 level yet. On one side of the coin, the markets are holding. That does not mean another flush to the downside is not right around the corner, but we are not sure that will happen over the next few days. According to the Ned Davis S&P cash study for the November expiration, today has been up 19 / down 9 of the last 28 occasions, Thursday has been up 16 / down 12 and Friday has been up 17 / down 11 of the last 28 occasions. While the markets are struggling, the stats suggest the next 3 trading days are going higher. Remember, if we do start going down, the Fibonacci 61.8% retracement in the S&P comes in at the 1345 area.

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: As bad as the markets act, we think they are going to move higher over the next few days. That does not mean they can't sell off; what it means is we are looking for a push back up as we go into the November options expiration. There is a very big line of buy stops that starts above 1388 and going all the way up to 1396. As always, keep an eye on the 10-handle rule and please use stops.

Today’s data:

  • It’s 6:00 a.m. and the ESZ is up 6.75 handles at 1377.25, crude is up 25 cents at 85.63 and the EC is trading 1.2745, up 36 ticks.
  • In Asia 8 out of 11 markets closed higher (Shanghai Comp. +0.37%, Hang Seng +1.20%)
  • In Europe 7 out of 12 markets are trading lower (CAC -0.32%, DAX -0.29%)
  • Today’s headline: “Index Futures Higher Before Key Economic Reports”
  • Economic calendar: Today: Weekly mortgage apps, PPI, retail sales, business inventories, FOMC minutes, 13-F filings, Facebook lockup lifts; earnings from Abercrombie & Fitch, Staples, Tyco, Limited Brands, NetApp. THURSDAY: CPI, jobless claims, Empire state mfg survey, Philadelphia Fed survey, oil inventories, Fed bank of Chicago annual conf., credit card default rates reported; earnings from Target, Wal-Mart, Viacom, Gap, Dell. FRIDAY: Treasury international capital, industrial production, e-commerce retail sales; earnings from Foot Locker, JM Smucker, Ann Taylor
  • S&P futures volume: 1.95 mil ESZ and 8.5k SPZ traded
  • Fair value : S&P +6.00, NASDAQ +17.00
  •  MrTopStep Closing Print Video:http://www.youtube.com/watch?v=imKPXN1C0jA&feature=plcp

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