S&P Rebounds From Two-Day Losing Streak

Danny Riley
April 15, 2014

Yesterday the [SNP:^GSPC] closed +14.92 points, or +0.80%. The Dow Jones Industrial Average gained 146 points or +0.90%. Helping the markets higher was a better than expected retail sales number and earnings from Citigroup Inc. [C +4.36%]. The Nasdaq Composite gained 23 points or +0.60%. The Nasdaq Biotech Index closed unchanged, still down 11.6% in April.

image02 S&P Rebounds From Two Day Losing Streak
image02 S&P Rebounds From Two Day Losing Streak

S&P 500 Index Last 5 Days

Reverse course

Yesterday’s gains in the S&P [CME:SPM14] wiped out last Friday’s selloff. One of the things traders should look at is when the markets are down hard and close weak on Friday and the “no one wants to go home long over the weekend” thought process takes hold because everyone thinks the ESM14 will be lower. On Sunday night the S&P was down almost 10 handles in Globex but by the time the markets actually opened in the U.S. it was up over 10 handles.

This happened a few weeks ago when the S&Ps closed very weak going into the weekend of the Crimean vote. One could say that the S&P does whatever will do the most damage. In both cases the S&P did go down in Globex; it just didn’t stay down.

April expiration

It could end up the markets get saved by the calendar. The April options expiration, the Passover holiday, mid-month rebalancing, April 15 tax day and the stock market closed for Good Friday.

The S&P cash study for April expiration shows this week as bullish. If you look at the chart below, every day this week is up except Thursday. The Tuesday of expiration week has been up 18 / down 7 of the last 25 occasions.

The markets may want to go down but there are also a lot of reasons for them to go back up and the April options expiration is just one of them.

The Asian markets closed mostly higher and in Europe 7 of 12 markets are trading lower. Today’s economic and earnings calendar starts with the Consumer Price Index, Empire State Mfg Survey, Redbook, Treasury International Capital, Housing Market Index and earnings from Coca-Cola, Intel, and Yahoo!.

AD9 S&P Rebounds From Two Day Losing Streak

IM Pro Boot Camp – Starts April 18th

The Spring Boot Camp starts in 4 days. This is a great opportunity to get a look at the “guts” of the MrTopStep trading room for a full week. You will get Frank Ochoa the PivotBoss, Kathy Garber from StructuralTrading, Jack Broz from Broz on Bonds and Stewart from ChicagoStockTrading, some of the best traders and teachers in the business. Join a room full of working professional traders sharing their ideas, insights, and trades live. The room has live charts, audio live from our S&P desk on the floor of the Board of Trade, screen share, and the MrTopStep Imbalance meter (MiM) — all for $19. Use the coupon code bootcamp105 and it goes down to $7.00 for a full week of live trading. You can’t beat this deal … and of course yours truly will be online talking about the markets and providing flow.

Our view

The markets go up , the markets go down. When the S&P looks great you have to sell it and when you think it’s going to fall off a cliff you have to buy it. The major indices have suffered a setback over the last few weeks: the Dow is down -2.4% , the S&P is down -1% and the Nasdaq Composite is down -3.7% year-to-date.

It’s highly unlikely that the all the shorts covered. In fact the late-day selloff only added to the problem. My opinion is that if the biotech sector continues to be weak so will the S&P, but I don’t think the current tech selloff is like the 2000 tech bubble.

The S&P may go back down at some point, but I am just not sure about today. If the ESM gets above 1828.00 and holds, then 1838 could be where the ESM14 is headed. Sure you can sell rallies and buy weakness, but I prefer the latter.

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

  • In Asia, 7 of 11 markets closed higher: Shanghai Comp. -1.40%, Hang Seng -1.60%, Nikkei +0.62%
  • In Europe, 7 of 12 markets are trading lower: DAX -0.39%, FTSE -0.07%
  • Morning headline: “S&P futures seen higher ahead of earnings deluge”
  • S&P Fair Value: 1824.21 (futures 3.04 higher at 1827.25)
  • Total volume: 1.87M ESM and 8K SPM traded
  • Economic calendar: Consumer Price Index, Empire State Mfg Survey, Redbook, Treasury International Capital, Housing Market Index.