Buy NASDAQ, sell Dow Jones
The Dow Jones Industrial Average [^DJI:DJI] closed down 41 points or -0.25% and the NASDAQ Comp [NQH14:CME] closed 17.24 points higher or up +0.41%. The S&P 500 [^GSPC:SNP] closed up 1 point or 0.06%. With a lack of economic reports, traders focused on a mix of earnings results. Today, however, is likely to be much different.
Stocks
Dow component [IBM] reported adjusted fourth-quarter earnings that beat expectations but missed on revenue. Texas Instruments [TXN] said it was cutting 1,000 jobs across the United States, Japan and India, and United Technologies [UTX] reported a rise in fourth -quarter profits that beat estimates. BlackBerry [BBRY] rose after the company reported it was going to sell most of its Canadian real estate and Advanced Micro Devices [AMD] sold off after the personal computer processor maker’s quarterly revenue disappointed investors. Apple [AAPL] shares were higher after Carl Icahn spoke out against the iPhone maker over his push that the company “boost” its share buybacks.
Futures
The Nasdaq futures [NQH14:CME] were bid throughout the day while the Dow futures [YMH14:CBT] were offered most of the day. This goes back to this week’s earlier story about rotations and spreads trading one stock market against another. There has been a clear push to buy Nasdaq and sell Dow and S&P, and yesterday it was the Dow that got sold. All day long the YMH14 would try to uptick while the NQH14 was going up, only to see the YMH14 go offered. While this would be considered an “inter-market” spread in futures, the real reason it’s happening is that funds are hedging as they rotate into tech stocks.
Volume
Volume, or the lack of it, has been the theme in 2014. Sure the NASDAQ is going up while the Dow and S&P are lagging. but that has nothing to do with the volumes. The current volume slowdown started around the time the December roll started and has really never picked up. While I hate to harp on the issue, I think it’s a much bigger problem than most people think. Like I said on Twitter yesterday, the record volume in the ES is 6.69 million contracts. While the credit crisis was horrible for the public, the crisis pushed record volumes throughout all the exchanges. However, after MF Global, PGF, the flash crash and the stock market’s record rally, it really has become a case of the S&P being too firm to sell and too high to buy. Recently the ESH volume has slipped; it was literally unheard of to sell less than 1 million E-mini contracts (CME) in one day. Last week there was a 970K contract day and yesterday’s total volume was 941K.
How bad is it? Take yesterday’s total ESH volume of 940,000, subtract 200,000 for Globex and then subtract 60% to 70% for program and algorithmic trading and there’s not much left. At -60% that equals 296,000, at -70% it equals 222,000. That’s scary!
The Asian markets closed mostly lower and in Europe 9 out of 12 markets are trading lower. Today’s economic and earnings reports include initial claims, PMI manufacturing, FHFA HPI, existing home sales, leading indicators, EIA petroleum and natural gas report, 2-, 5- and 7-year note announcements, Fed balance sheet and money supply, and earnings from Microsoft, McDonald’s, Samsung, Starbucks, Fifth Third, Lockheed Martin, Nokia, Southwest Air, Juniper Networks, ETrade, Federated Investors, Baxter and Union Pacific. Yesterday was dead, but we have a feeling things are going to change today …
Our view
There is a good mix of companies reporting earnings and several economic reports and then tomorrow it’s back to no economic reports. To say it has been slow is an understatement. Generally that means the S&P is about to make a new high. There are a lot of buy stops building up above the 1842.70 level all they way up to the 1846-47 level and again above 1849 up to 1853. We don’t know when the rip happens, but it can’t be that far off. We lean to higher prices. You can take it from there…
In Asia, 9 of 11 markets closed lower: Shanghai Comp. -0.47%, Hang Seng -1.51%, Nikkei -0.79%
In Europe major markets are trading mixed: DAX -0.22%, FTSE -0.11%
Morning headline: “Stock futures fall with earnings, data on tap”
Total volume: 940k ESH14 and 5.8k SPH14 contracts traded
S&P Fair Value: 1838.91 (6.16 above futures)
Economic calendar: Initial claims, PMI manufacturing, FHFA HPI, existing home sales, leading indicators, EIA petroleum and natural gas report, 2-, 5- and 7-year note announcements, Fed balance sheet and money supply, and earnings from Microsoft, McDonald’s, Samsung, Starbucks, Fifth Third, Lockheed Martin, Nokia, Southwest Air, Juniper Networks, ETrade, Federated Investors, Baxter and Union Pacific
E-mini S&P 5001788.75+6.75 - +0.38%
Crude98.55-0.22 - -0.22%
Shanghai Composite0.00N/A - N/A
Hang Seng21976.10-473.961 - -2.11%
Nikkei 22515005.73-385.829 - -2.51%
DAX9375.69-16.329 - -0.17%
FTSE 1006579.46-193.82 - -2.86%
Euro1.3661
Buy NASDAQ, sell Dow Jones
