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NASDAQ 4000 and fresh 13-year highs

Danny Riley
NASDAQ from 2000 300x210 NASDAQ 4000 and fresh 13 year highs

The Nasdaq Composite Index (^IXIC:NIM) cleared the 4,000 mark for the first time since September and the S&P made its 42nd or 43rd new all-time contract high this year. Bank of America [BOA] upgraded Caterpillar and Boeing [BA] fell as the airline warned of engine icing risks on its new 747-8 and 787 Dreamliners..

The S&P futures have closed higher 12 out of 17 trading days in November. Everyone knows the S&P futures [ESZ13] have been making new highs almost daily. It’s not what happens the day the S&P sells off; it’s what happens the next day.

On Nov. 7 the ESZ13 closed down 20.4 handles, which would be considered a big down day. The next day, Nov. 8, the S&P closed 20.9 handles higher. Another example was last week when the S&P was down Monday through Wednesday and on Thursday made back those losses and more. There is no selling the S&P — or is there?

That’s a good question. With just 4 trading days left in November and the shortened holiday week, one would think the imbalance would be to buy early in the week and for sale at the end of the week, but yesterday’s closing imbalance was MOC sell $410mil. It could be that investors take some profits at the end of the month.

In Asia 7 out of 11 markets closed lower and in Europe 10 out of 12 markets are trading modestly lower. Today’s economic calendar starts out with the housing starts numbers, Redbook, FHFA House Price Index, S&P Case-Shiller HPI, consumer confidence, the Richmond Fed manufacturing index and a 5-yr note auction.

There really is not much to say about Monday. The S&P futures traded in a 4-handle range for most of the day, and when you take out the 225,000 ESZ13’s trading on Globex before yesterday’s open the total volume drops down to 860,000. Whenever the ES trades under 1 million contracts it’s basically telling you no one was trading, especially when you subtract 60% for program and algorithmic trading. We know Mondays start slow, but if yesterday is a precursor to the rest of the week, we’re all in trouble.

Our view

Good news is good and bad news is good. It doesn’t matter one way or the other– the markets are going up. Straight out: Yesterday’s sell imbalance could be a hint about how the rest of November goes. With the S&P up 2.6% on the month and 27% on the year, some people are taking some profits. Yesterday a friend who used to run the Goldman Sachs (GS) prop trading desk sent us this. It basically says exactly what I have been talking about for the last 10 days: out of bonds and into stocks.

Retail Investors: Start Your Engines
Bond fund outflows last week were -$9b. Equity fund inflows were +$6b.If the S&P does indeed close 2013 up +26%, then financial advisors will tell their clients that the previous 12 times the S&P was up +26% in a year, it increased +10% on average the following year.

We think the S&P pulls back in 2014, but that could be weeks if not months away. It’s an absolutely stunning rally, and as we said, until we see an overall change in the price action we see no reason to fight it. We could see a few days of sideways to lower price action. Part of this is due to the low level of trade and the other is the S&P needs to pull back a bit before going back up. We lean to selling the early rally and buying weakness with tight sell stops. Both today and Wednesday will be full trading days, with U.S. markets closed Thursday for the Thanksgiving holiday.

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


  • In Asia, 7 out of 11 markets closed lower: Shanghai Comp. -0.14%, Hang Seng -0.01%, Nikkei -0.67%.
  • In Europe 8 of 12 markets are trading lower: DAX +0.08%, FTSE -0.38%.
  • Morning headline: “Global shares droop as oil prices climb on Iran deal doubts”
  • Total volume: 1.1mil ESZ and 5k SPZ traded
  • Economic calendar: Housing starts, Redbook, FHFA House Price Index, S&P Case-Shiller HPI, consumer confidence, the Richmond Fed manufacturing index and a 5-yr note auction.
  • E-mini S&P (Sep)1803.50+1.50 - +0.08%
  • Crude97.80-1.42 - -1.43%
  • Shanghai Composite0.00N/A - N/A
  • Hang Seng23806.35+125.07 - +0.53%
  • Nikkei 22515449.63-65.61 - -0.42%
  • DAX9351.13+61.06 - +0.66%
  • FTSE 1006649.47+13.25 - +0.20%
  • Euro1.3575
NASDAQ 4000 and fresh 13 year highs