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S&P 1850 still expected despite lackluster week

Danny Riley
ES 03 14 60 Min 1 17 2014 300x164 S&P 1850 still expected despite lackluster week

The S&P 500 [^GSPC:SNP] closed down slightly at 1,845.89 yesterday while the NASDAQ [^IXIC:NASDAQ] closed 9.1 handles higher. After Monday’s big decline and then a two-day rally, we said we thought the S&P needed a rest, and that’s how yesterday’s trade ended up.

Despite the big bounce and new contract highs, traders remain bearish the E-mini S&P [ESH14:CME] and stocks. While that may have worked in the first week and a half of the year, the S&P’s overall price action remains intact.

In yesterday’s call we said to sell the rallies, and while that worked, volume was very low. Volumes started to slow in the middle of December and saw a slight pickup at the end of the December rollover, but there was no real year-end pickup, nor has there been one in the new year.

Plain and simple, the public doesn’t know what to do, and with over 11 full months left in the year January is starting to look like a very good month.

Nowhere to go but stocks

With negative returns on interest rates and the S&P up over 30 % year over year, it’s hard to imagine any rush into the rate market. This leaves stocks, and that’s where all the money is going. How long will it last? That is anyone’s guess, but we do think the end of February and early March is when the S&P will begin to buckle. Right now it’s just not happening.

The Asian markets closed mostly lower and 8 out of 12 European markets are trading higher. Today’s economic and earnings schedule includes the housing starts, industrial production, consumer sentiment, JOLTS and Richmond Fed President Jeffrey Lacker’s speech on the economic outlook, in Richmond.

Our view

We said the S&P needed a rest before going back up on Friday (today) and we still feel that way, and we also cannot rule out some type of late-day rip if the spoos are holding. Our view is that the sellers will show up on the open but there is a good chance the S&P futures trade 1850 today. This rally is not over, my friends. It’s possible today may not be the day the ESH14 takes out 1850, but it is coming.

  • In Asia, 9 of 11 markets closed lower: Shanghai Comp. -0.93%, Hang Seng +0.64%, Nikkei -0.08%
  • In Europe 8 of 12 markets are trading higher: DAX +0.24%, FTSE +0.10%
  • Morning headline: “S&P Futures Seen Higher, General Electric’s Net Profits Rise”
  • Total volume: LOW 952k ESH14 and 5.4K SPH14 traded
  • S&P fair value: 1839.84(+3.59)
  • Economic calendar: Housing starts, industrial production, consumer sentiment, JOLTS, Jeffrey Lacker speaks.
  • E-mini S&P 5001837.75-0.75 - -0.04%
  • Crude98.55-0.22 - -0.22%
  • Shanghai Composite0.00N/A - N/A
  • Hang Seng23082.25+49.131 - +0.21%
  • Nikkei 22515820.96+25 - +0.16%
  • DAX9733.49+3.37 - +0.03%
  • FTSE 1006835.67+1.41 - +0.02%
  • Euro1.3561
S&P 1850 still expected despite lackluster week