MrTopStep Best of 2012: A SHIFT IN S&P PRICE ACTION?

MrTopStep.com

By Danny Riley

The S&P futures did exactly what we thought they would last week. They closed down Monday, Tuesday and Wednesday, rallied Thursday like we thought, then did a big “flunk-a-dunk” on Friday while looking for the Pit Bull Thursday / Friday low the week before expiration. Friday capped the worst week for stocks in 4 months. Despite better than expected numbers out of JPMorgan, the S&P futures tried to rally early in the day and failed. We did say we expected a retest of the Wednesday Globex low at 1421.25, but we have to admit the price action was much weaker than we expected.

After marking a low at the 1300 area in early June, the S&P’s price action has been set in stone. Make a new high, pull back 30 to 40 handles, then rally again, but after the S&P got clobbered the way it did last week one has to wonder if the tide is starting to turn. With many of the big funds’ year end at the end of October and the big “sell NASDAQ/ buy S&P and Dow” trade going on, it's beginning to look more and more like liquidation. We know you have to time the up days much better lately, but that’s not what we are concerned with. Throughout the rally, as more people were cheering to sell, we maintained a solid stance that the S&P was going up and that until something changed we pushed for higher prices.  

After last week’s performance we still maintain an upward bias, but we have to admit there has been a slight change in the price action. Up until last week the S&P would sell off early in the week and then rebound late in the week. One of the things we have noticed is that while the S&P may have more down days in a week, the down days tend not to do a lot of damage versus some very strong up days.  Go down several days, then make a higher low and rally, but that’s not how things ended up last week.  Last week we took the lows and closed on them.

Hunting for stops: Another part of the price action is hunting for stops. Two weeks ago we wrote that the buy stops were 1459 to 1465, and the high that day ended up 1466. We do not know how the Pit Bull’s low will end up, nor do we know if the Ned Davis S&P cash study stats are going to work. But what we do know is that the next big area for stops is just below 1420. Based on how the algorithms tracked the upside buy stops and the fact that we are so close to the downside sell stops we find it hard to believe the SPZ won’t run the sell stops on the downside. As we have said hundreds of times, “No stops go untouched in the S&P.”

S&P FUTURES NET CHANGES FOR OCT

Monday, Oct. 1 +2.1 handles
Tuesday, Oct. 2 +4.0 handles
Wednesday, Oct. 3 +3.8 handles
Thursday, Oct. 4 +11.1 handles
Friday, Oct. 5 -0.30 handles
Monday, Oct. 8 -5.7 handles
Tuesday, Oct. 9 -13.9 handles
Wednesday, Oct. 10 -5.5 handles
Thursday, Oct. 11 +2.1 handles
Friday, Oct. 12 -7.5 handles


              NED DAVIS S&P CASH STUDY FOR THE OCTOBER EXPIRATION
 

  • Monday              up 21 / down 7 of the last 28 occasions
  • Tuesday              up 12 / down 16 of the last 28 occasions
  • Wednesday         up 15 / down 13 of the last 28 occasions
  • Thursday             up 17 / down 11 of the last 28 occasions
  • Exp. Friday         up 16 / down 12 of the last 28 occasions                              

MrTopStep Closing Print Video: http://www.mrtopstep.com/videos/#vid-top

Our view:
The S&P futures have closed down 5 out of the last 6 trading days.This morning  M&A activity in Europe pushed stocks higher and the S&P is going for the ride. The ESZ traded down to 1416.50 on Globex and is 10 handles off the low. Going into this morning we thought it was possible the ESZ could make a low in Globex and open above, and that’s what it looks like so far.  Our view is that the ESZ is oversold short term and with the Ned Davis S&P cash study showing that the Monday before the October expiration has been up 21 / down 7 of the last 28 occasions, we think we go back up a bit, but we also cannot rule out a run at the sell stops under 1420 down to 1416. As always, keep an eye on the 10-handle rule and always use stops.

  • It’s 6:00 a.m. and the ESZ is up 5.5 handles at 1427.00, crude is down 38 cents at 91.48 and the EC is trading 1.2964, down 1 tick.
  • In Asia 7 out of 11 markets closed higher (Shanghai Comp -0.30%, Hang Seng +0.06%).
  • In Europe 11 out of 12 markets are trading higher ( CAC +1.22%, DAX +0.72%).
  • Today’s headline: “ European Stocks Advance As Pace of Merger Deals Intensifies.”
  • Economic calendar: Today: Retail sales, Empire State mfg survey, business inventories, credit card default rates reported; earnings from Citigroup. TUESDAY: CPI, Treasury int'l capital, industrial production, housing market index, News Corp shareholders mtg, Target media day, 2nd presidential debate; earnings from Coca-Cola, Goldman Sachs, J&J, United Health, Mattel, PNC Financial, State Street, IBM, Intel, CSX. WEDNESDAY: Weekly mortgage apps, housing starts, oil inventories; earnings from BofA, PepsiCo, Bank of NY Mellon, Blackrock, Northern Trust, US Bancorp, AmEx, Ebay. THURSDAY: Jobless claims, Philadelphia Fed survey, leading indicators; earnings from Morgan Stanley, Phillip Morris, Travelers, Union Pacific, Verizon, Fifth Third, Huntington Bancshares, KeyCorp, Nokia, Google, Microsoft, AMD, Capital One, Chipotle, E-Trade. FRIDAY: Existing home sales; earnings from GE, McDonald's, Schlumberger, Honeywell, Edwards Lifesciences
  • VOLUME: 1.62mil ESZ and 9.3k SPZ traded
  • SPREADS: 4 SPZ/H spreads traded
  • FAIR VALUE: S&P +3.50,  NASDAQ + 11.50
  • YTD NET CHANGES: DOW +9.10%, NASDAQ +16.85%, S&P +13.60%, RUSSELL +11.09%, VIX -31.03%


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The vice presidential debate was a close call, but the smugness that was displayed by the more experienced and older, sorry the more mature Vice President Biden was hard to accept. I am trying not to be political, just saying the solid points that VP Biden scored seemed to be lost in the haze of his gestures. Moving on, premarket reports that Spain will decide on a bailout once the ECB discloses the full details on the program. Really? At this stage of the cat and mouse game - they don’t know the full details, what have they been doing? Maybe no one knows the full details just yet - as there is no agreement. That is as worrisome as thinking about our administration working out a partisan fiscal cliff resolution. Also, JPM and WFC reported acceptable earnings, not too hot and not too cold as the premarket was trading modestly higher without conviction on either side of the market. What comes to mind is the old “devil in the details.” Similar to Thursday, the the overnight gains eroded early in the RTH session. Today’s surprise from the University of Michigan confidence data, which followed other equally surprising friendly economic data of late, did nothing to help the bulls - as the bears sold the news again. This week the buyers have been content to standby as the equities lack a catalyst to push ’em higher as we face the headwinds from the corporate earnings. Following the retest of the highs last week, investors and traders alike appear to be happy to conserve their capital and take their profits. We have been reporting that this week’s erosion has only seen moderate volume. In other words, the equities have not capitulated on the downside which would generally signal a turning point.

Morning observations: 07:30 *DJ DATA SNAP: U.S. Producer Prices Rise 1.1% on Energy, Food *DJ US Aug PPI Unrevised. WFC slips & pulls on JPM, financials & spooz  /  Intrade 62.80/37.00....starting to see investment scenarios coming out / BTU the romney hedge starting higher low reversal / TY1 inverted head shoulders standing out....little imbalance posted by Roger.

MrTS video:  http://www.mrtopstep.com/10-12-12-rich-canlione/
MrTS Charts: "MAJOR INFLECTION STOCKS TO BONDS / SPY / TLT / SPZ 1420!" by EUBIE
http://www.mrtopstep.com/mrtopstep-charts-major-inflection-stocks-to-bonds-spy-tlt-spz-1420/
EUBIE: last FRI 1466 / this FRI 1420 / 12DAY LOWS / only -45 from here http://www.mrtopstep.com/mrtopstep-charts-a-2xtop-to-a-punch-esz-1425-whats-40-handles-2-7-in-4days-between-friends/

Friday started with 280k ESZ and 1k SPZ traded on Globex, trading range 1428.00 – 1434.50 / Thursday’s RTH’s, pit range was 1427.50 – 1439.00, settled at 1428.40 up 2.1 handles. Today’s RTH’s opened slightly higher at 1429.00 – 1428.70, traded 1427.50 followed by 1430 area. Roger posted, small cappers wobbly with Nasdaq Composite leading negative divergence with 3 day break below 55-day SMA at 3076 opens risk to 3015  and the spoos traded a new low of 1427.20 by 8:50CT. Both the DJIA and the DJT’s were leading the way early as Mike_V posted his technical analysis (08:49:58): ES: 1434.00 x 1423.25 vol window. At 8:55, Michigan sentiment checked in at a surprising 83.1 vs exp 78, reaching its highest level since September 2007. The +5.1 gap was the largest since 2005 and what do the equity traders do with the surprise - sold!!! As the spoos were trading  up to 1433.80 HOD at 9:02 Mike_V posted (08:58:52): upper level is a screaming fade. The financials helped to lead the turn and the sell stops and sell programs did the damage. Today's price action was similar to what we had  seen earlier in the week. The rallies did not have the legs, the bullish conviction to hold the “pops’ in the market and the sellers were there to provide the liquidity. Following the gains, the recent pattern has been a series of lower highs and lower lows with some sideways trading in between. Today’s LOD checked in at 1420.50 as the buyers remained on the sidelines and the investors took their money in front of the uptick in earnings next week. The afternoon session was spent in the lower end of the days, weeks range as many traders continue to pattern of leaving early on Friday. The closing imbalances showed 11 of the Dow 30 for sale, the broader market showed a very small $85M to sell. The cash close traded 1423.80 before settling at 1421.50 on the 3:15 futures close, down 6.9 handles on the day.  

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CONTRIBUTORS’ CORNER

SPX CHARTS

Roger Volz, BGC Partners

SP 2x bottom 1421.50 / 2x top 1439.25 now defines tightening technical resolution range=> Inside Range 1427 / 1435, Outside Range 1419.50 / 1444.50 for acceleration in either direction on a break
ND1 head shoulders neckline resolution => Inside Range 2708 / 2722, Outside Range 2695   for next technical downgrade / 2753
Russell 2000 consolidating in neutral holding another retest bottom of range at 55-day SMA at 820 => Inside Range 820 / 837, Outside Range 808 / 850
VIX messy choppy configuration akin to spring 2011 =>Inside Range 15.00 / 17.00,Outside Range 13.90 / 18.50
Gold higher low but needs 1775.80 + for repair; eyeing h/s possibility => Inside Range 1756 / 1776, Outside Range 1717 / 1791
CL1 (Crude Oil) short term repair consolidation above 91.25 but needs continuation above 93.60 => Inside Range 91.25 /93.60, Outside Range 89.30 / 94.60
Ten Year Notes (TY1) inverted head shoulders pattern building catching our eyes => Inside Range tightens 132'25 / 133'13, Outside range 132’16, 133’25
Inside Range
· Represents intraday momentum gain/loss
· For example, if the upper bound of the Inside Range is 1435, one can trade short against it/use this area as a stop and vice versa
· If level is broken (sustained 5 minute move at a minimum, not quick spike up/down), it then typically becomes support/resistance for the remainder of the day
Outside Range
· Represents short-term trend changes
· If broken, the current trend may be in the process of reversing
· 2nd Outside Range (applied if needed) may be in play for a true trend reversal

SP 500 Futures and Indicator….early stall at 1434.50-1435.50 would retake negative stance below 1427.50; opens door for retest of the 10/10 lows.
ST OS 1450.50

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DISCLAIMER: The information and data in the following report(s) were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities. MrTopStep, its officers, directors and its contributors may. in the normal course of business, have position(s) which may or may not agree with the opinions expressed in this report.

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