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By Danny Riley

When Columbus sailed the ocean blue, it was with three ships. Maybe that’s why the U.S. financial markets take different tacks in celebrating the federal holiday in his honor. The bond and currency markets on the CME floor are closed and the S&P futures left open. But for as long as we can remember, they’ve said the real reason the S&P’s stay open on certain holidays is because the NYSE is too cheap to close.

In the first part of the day the ESZ had a 2-handle range, later it had a 4-handle range and at the end of the day the range was a ridiculous 4.8 handles. Basically the ESZ did something that the Pit Bull and I used to talk about for years. It’s called “take out the highs, take out the lows,” and that’s what the ESZ did all day. It traded up a little, traded back down a little. The big question, though, is why were the S&P futures open while the rest of the financials are closed? It’s hard enough dealing with the program and algorithmic trading,  let alone a 2-handle trading range in the first hour. If you were in front of your screens all day I bet you did not trade at all!

Yesterday the Dow pulled back after hitting a five-year high, closing down a modest 26.5 points. The S&P closed down 0.35% and the NASDAQ slipped 23.84 points or -0.76%. Over the last few weeks the mutual/investment funds have been selling the NASDAQ and buying the Dow and S&P. With the NASDAQ up 20% on the year, this is a way for some of the funds to book some profits. This unwind has been very easy to see.

Today Alcoa kicks off the third-quarter earning season after the bell. Analysts expect the aluminum producer to post a break-even quarter, down from reporting earnings of 15 cents a share a year ago, according to data from Thomson Reuters. As we go into the earnings season, analysts expect earnings for the period ended September to decline, the first negative result after 11 consecutive quarters of gains. The global slowdown and an anemic U.S. recovery is expected to help create one of the worst earning seasons since 2009. Wall Street analysts expect third quarter earnings per share for the S&P 500 companies to fall 2.7% vs. the same quarter a year ago and just 1.9% growth three months ago. For the last three months some of the largest companies have warned about reduced full-year profits. Now it looks like we have a three-fer going: negative third quarter earnings, a possible selloff after the election and last but not least the fiscal cliff at year end. While we still think the S&P is going to work higher, in August the chief executive of Caterpillar, bellwether of the industrial economy, warned of the greater uncertainty about global growth, predicting it could take another five years before Europe’s economy begins to grow. It all sounds bad, but I’ll bet you the earnings don’t go that way!

MrTopStep Closing Print Video:

Our view:
As much as we like the upside, we also know that this can change at any time. One  of the problems the S&P is facing is volume. The stock market continues to go up on lower trading volume. Last week NYSE volume fell by 4% and is down 30% year to year and is down a whopping 44% over the last 2 years. Last year at this time the S&P was doing record volume, while yesterday’s total volume was under 1 mil contracts. Additionally, outflows have accelerated in the past two weeks, with over $13bil being pulled out of stocks. We lean to selling the early rally and looking to buy weakness. As always, keep an eye on the 10-handle rule and please use stops.

  • It’s 6:00 a.m. and the ESZ down .50 handles 1449.25, CL is up 37 cents at 89.70 and the EC is trading 1.2936, down 48 ticks.
  • In Asia 5 out of 11 markets closed higher (Shanghai Comp +1.97%, Hang Seng +0.54%).
  • In Europe 7 out of 12 markets are trading lower (CAC +0.03%, DAX -0.53%)
  • Today’s headline: “Europe Tells Greece to Speed Up Economic Reform.”
  • Economic calendar: Today: NFIB small biz index, 3-yr note auction, FedEx investors mtg, P&G shareholders mtg; earnings from Alcoa, Yum Brands. WEDNESDAY: Weekly mortgage apps, wholesale trade, 10-yr note auction, Beige Book, Treasury budget, Wal-Mart investors mtg; earnings from Costco. THURSDAY: International trade, jobless claims, import/export prices, oil inventories, 30-yr bond auction. FRIDAY: PPI, consumer sentiment, GM resumes Volt production; earnings from JPMorgan, Wells Fargo.
  • VOLUME LOW:  961k ESZ and 2.7k SPZ traded
  • SPREADS: SPZ/H spreads traded  (none)
  • FAIR VALUE: S&P +0.5,  NASDAQ -5.5


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World Bank warning about Asian growth, more US corporate preannouncement warnings and holiday doldrums left the bulls wanting for more as a red AAPL a day keeps the investors at bay. ... Equities continued where Friday left off, soft - as the rotation continues and sentiment erodes even as some recent US economic data has shown signs of firming following the jobs report, car sales and housing.  However, it is the rest of the world that concerns most investors and traders alike. That’s assuming they are not thinking about our impending presidential election, fiscal cliff, gas prices or the Middle East. ... For the most part, the news is the same as the calendar counts down the days until the next event comes into play. Aside from watching the Eurozone, traders will begin to focus on the US corporate earnings. The talking heads have already sliced, diced and bemoaned the ominous corporate warnings / earnings yet to come, which has set the bar even lower. We will get a look at some banks later this week, but the action picks up next week.
Morning observations: The Eurozone finance ministers are meeting today and tomorrow - expectations are low for any real news. Greece and Spain’s next step for bailout resolution is thought to be late October or early November. AA earnings report is tomorrow and that can only kick it up a notch, considering the lethargic trade today.

Monday started with 183k ESZ and 800 SPZ traded on Globex, trading range 1448.50 – 1457.00 / Friday’s RTH’s, pit range was 1451.50 – 1466.00, settled at 1455.50 down .3 handles. Today’s RTH’s gapped 5 handles lower 1450.50 – 1450.00. The spoos traded down to 1448.20 by 9:35 and popped up to 1452.00 by 9:45 before flopping back to 1448.00 LOD by 9:55. Both AAPL and GOOG were down between $10 and $15 for most of the day and that appeared to hold the equities in check as many of the traders that came to work left by midday. The sideways trade set in as the spoos quietly stepped higher, topping out at 1452.80 at 2:15. With 1450.50 area trading the broader market showed $138M to the buy side on the closing imbalance. On the 3:00 cash close the SPZ traded 1451.2 before settling at 1449.80, down 5.7 handles on the day.

MrTS charts: in case ya missed my 2XTOP call FRI / 1466 / now -20 FROM --> Eubie




Roger Volz, BGC Partners

SP 500 Futures 60 min Chart and Indicator …. Takes short term negative lean below 1451.50 sees the next area of concentrated support at 1446.25 to 1443.00 to open an air pocket to 1436.00-1434.50. Some room for short term oversold readings, 1424.50. Our short term momentum repair line is 1455.75.
ST OB > 1474.50 /// ST OS Additional intraday readings
VST 5 min ……correcting VST 5min OS issued 1455.00 /// VST OS VST 15 min …Friday’s am reach to VST 15 min OB >1465.75 is the stand out signal leaves first VST OS lowered to 1440.50
Daily Chart Focus Levels….Double topforms against the next group of concentrated resistances at 1460.50 / 1461.50 / 1464.00
SP1 Daily Resists ….….…..1460.00-1461.50-1464.00……1467.00….1475.00…..1478.00…………1492.00……………1506
SP1 Daily Supports….1448.50..….1444.00….…1439.50……..1431.75-1427.00…….1419.50 ….. 1413.00 …. 1405….1401.00/ 1399…..1390.00…….1382.00
SP1 Daily OB >1478.00 (1485.50 for raise) /// SP1 Daily OS Weekly Chart Technical Stance and Focus Levels….a double top falls short of testing the next ledge of resistance in our intermediate term model at 1469.50-1470.50. A consolidation pattern begins Monthly Chart Technical Stance and Focus Levels …..lower high so far Oct vs Aug 1467.50 – 1466.00 avoiding strong positive > 1481; our last note had us “on guard for a Oct lower high 1467.50 -1457.50 (current)” ….inside range 1481 / 1405 (1357) lifted….outside range 1533/ 1273

SP 500 Futures 60 min Chart

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