Danny Riley
July 12, 2013


2Q Earnings Likely to Have More Beats
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2Q Earnings Likely to Have More Beats

Traders need a map, a guide to the terrain, as well as a plan for how to get to the destination and exit. They also understand that “the map is not the territory,” as psychologists say, and prepare for unexpected detours. In that case, common sense says to either exit and ask for directions, or just keep headed in the right direction. If we know our destination is east and we see a sunset ahead, it’s time to turn around. It’s not just getting in and getting out; it’s also about following the trend.

Today's Opening Print is going to be short and sweet. There has been an explosion going on in the S&P on the upside, and while I could read other stock market stories and pull some chart or stats, I really don't have to. Like many of you, I live and breathe the S&P. I go to bed and I wake up thinking the S&P. When I go to my office at MrTopStep we talk the S&P and when I get home at night I write about the S&P.

So, let’s get down to it ...

On a roll

The S&P sold off 5.8% from from its closing high between May and June, breaking the streak of 149 days without a 5% decline, the longest streak since 2007.
There have been 57 instances since 1946 where the S&P 500 posted losses of between 5 percent and 10 percent from a peak.
On average, the retreats lasted a month, and it took two months for the market to recover the losses. Only a third eventually turned into corrections, or declines of more than 10%.
The S&P closed above its previous all-time high of 1680 on May 21.
The S&P futures have closed higher 11 out of the last 12 days, moving up 121 handles.
The S&P futures have closed higher 6 out of the last 6 days, up 80 handles.
The S&P is on pace for its largest weekly gain since January.
The S&P is up 148% since making its March 2009 low.

Last but not least, 132 companies are trading at 52-week highs, almost three times the average at four S&P 500 peaks between 1990 and 2007.

Tuesday June 25 +15.2
Wednesday June 26 +14.1
Thursday June 27 +11.1
Friday June 28 -7.3
Monday July 1 +7.4
Tuesday July 2 +.50
Wednesday July 3 +1.9
Friday July 5 +18.2
Monday July 8 +8.2
Tuesday July 9 +10.1
Wednesday July 10 +3.0
Thursday July 11 + 21.5
Equals =  +121 handles

So we may not have an exact map of the future; we may not be able to predict every little twist of the road ahead. But we know which way the road is probably headed, and that’s north. If we can avoid getting greedy and exit in a timely way, we’ll get there safely and profitably.  

Our view: The Asian markets closed mostly higher and Europe is trading higher across the board. While I mainly concentrate on the S&P, the NASDAQ comp is on its longest winning streak since Nov. 26, 2012, and at its highest level in 13 years. This morning we have some bank earnings, PPI and consumer sentiment. According to the Ned Davis S&P cash study, the Friday before the July expiration has been up 20 out of the last 29 occasions. Our view is that a lot of shorts have covered over the last few days and with the S&P, Dow, NASDAQ and Russell all sitting on new highs, we think it’s fair to say that everyone expects the markets to go higher now. While “thin to win” has also played its part in this record push higher, the facts are the facts: The S&Ps are up 121 handles in 12 trading days. That is an average of about 10 handles a day. We lean to selling the rallies with tight stops in the morning and waiting for the MrTopStep Imbalance Meter (MIM)™ for direction into the close. There are going to be a few down days before next Friday's expiration and S&P 1700.

MI-BX150 PANMKT G 20130711190006
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MI-BX150 PANMKT G 20130711190006

As always, keep an eye on the 10-handle rule, and please use stops when trading futures; live to trade another day.

It’s time to get your playbook set up for next week’s July expiration, and there is no better way to do that than with the Ned Davis Expiration Study -

  • It’s 8:15 a.m. and the ESU is trading 1671, up 1 handle; crude is up 88 cents at 105.79; and the euro is down 59 pips at 1.3042.    
  • In Asia, 7 out of 11 markets closed higher (Shanghai Comp.-1.62%, Hang Seng -0.75%, Nikkei +0.23%).
  • In Europe, 11 out of 12 markets are trading higher (DAX +.88%, FTSE +0.38%).
  • Today’s headline: “U.S. Stock-Index Futures Little Changed as JPMorgan Beats”
  • Total volume: LOW 1.45 mil ESU and 7.6k SPU
  • Economic calendar: Producer price index, consumer sentiment and earnings from JPMorgan and Wells Fargo
  • Fair value: S&P +1.63, NASDAQ +5.44
  • MrTopStep Closing Print Video:
  • Ned Davis Expiration Study for July -

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.

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DISCLAIMER: The information and data in the above report 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.