U.S. Markets closed


Danny Riley

With the U.S. over $16tril in debt, pivoting out of the Middle East into Asia, one has to wonder where all of this is going to end up.

By now most of you know that my commentary is more about the daily price action of the S&P. Over a long period of time of watching all the ups and downs, through all the wars and all the different administrations from Jimmy Carter to President Obama, I really cannot remember anything like what we are seeing today. With the U.S. over $16tril in debt, pivoting out of the Middle East into Asia, one has to wonder where all of this is going to end up.

At the end of the rainbow:
Let’s face it, without the Fed's quantitative easing programs and all the money they have printed, the U.S. economy would have fallen off a cliff. There is no doubt about that, but what's in store for us at the end of the rainbow? There are several big long-term negatives at work that the market has been overlooking and the big one is the number of people still out of work. This was highlighted in the March employment numbers that fell way short of job growth expectations. Debt can pile up, but without job growth there will be no recovery.

New highs and few smiles:
Prior to the credit crisis, the public would cheer new highs in the stock market. That is not how it works today. After the big shakeout and the 2009 stock market lows the S&P has rallied over 133%, but that has done little for the general public, which is still struggling to keep up. Sure, if you have a mutual fund or a retirement account you have seen a decent turnaround. but what about all the people that sold and never got back in? They were paralyzed by the selloff and now they have been paralyzed by the rally.

Bus Too Full:
MrTopStep has a rule called the “Bus Too Full” that came into play last Thursday when the S&P and Dow traded into all-time new contract highs. Most people didn't recognize that until Friday morning when the S&P was sharply lower. I saw it clearly going into Thursday close when the public all of a sudden started saying the S&P was going to trade 1600 on Friday. (See MrTopStep Trading Rules 101: https://mr-topstep.com/index.php/education/675-trading-rules-101)

BUS TOO FULL: This is a street guy’s term for when the markets are overbought or oversold. When everyone is bearish and the markets are down, we are looking for buying opportunities. We sometimes use “the bus is too full” instead of the terms “overbought” or “oversold,” and the bus tends accelerate to extremes in either direction.

No one knows for sure when the S&P is going to start to sell off, but the current price action should not be considered positive. As the S&P closes in on the April expiration and the old adage about selling in May and walking away approaches, we think it may be time to take some profit and start looking for some downside protection. Not saying you have to do this today, but we do think the time for a pullback is nearing. After all, what goes up will come down eventually.

Our view: The S&P had a nice bounce but it’s right back down this morning. While still bullish, this type of price action should be viewed as a negative. The S&P is up over 12 percent at its highs, overbought and overextended and sitting at all-time new contract highs. It seems like the world has ganged up on North Korea, but that doesn't mean the problem is over. Little Kim may still need to prove he is a big man and a great leader by blasting off a few of his medium-range missiles. Because the S&P is down 8.5 handles, I prefer to get to the floor and get a look at the price action (PA) before jumping in. As always, keep an eye on the 10-handle rule and PLEASE use stops.

  • It’s 7:00 a.m. and the ESM is trading 1575, down 7 handles; crude is down 1.69 at 89.60; and the euro is down 3 pips at 1.3082.
  • In Asia, 8 out of 11 markets closed lower (Shanghai Comp. -1.13%, Hang Seng -1.43%, Nikkei -1.55%).
  • In Europe, 12 out of 12 markets are trading lower (CAC -0.63, DAX -0.82%).
  • Today’s headline: “Global Markets Down Across the Board; China Growth Eyed”
  • Total volume: 1.8mil ESM and 8k SPM traded
  • Economic calendar: Empire State Mfg. Survey, Treasury International Capital, Housing Market Index.
  • Fair value: S&P -6.65, NASDAQ -11.78
  • MrTopStep Closing Print Video: https://www.mr-topstep.com/index.php/multimedia/video/latest/closing-print-4-12-2013

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.