After making a new year high on Tuesday at 1568, up 8.5 handles on the day, the S&P reversed lower yesterday, down 15.9 handles. A combination of some negative economic news, a weak financial sector and a very overbought S&P futures up against the old contract highs helped push stocks lower. The other thing working against the markets over the last two days has been the Dow Jones Transports (DJT). During Tuesday's rally when the S&P was up 8.5, the DJT was down 70, and yesterday it closed down 50 points. The index was clearly a drag on the broader market, as the 2.8% drop in crude oil, the largest drop since November, also weighed down on the S&P.
Yesterday was a prime example of how quickly things can change. One of the locals in the S&P pit said the trade in the S&P is like riding a roller coaster over the last two weeks, and you know what? He is right. Yes, we all know the S&P has been going up, but it’s also fallen into a pattern of what we call “up a day / down a day.” Starting March 19, the S&P has closed down one day and up the next over the last 11 sessions.
Tuesday, March 19 SPM -4.6
Wednesday, March 20 SPM +6.9
Thursday, March 21 SPM -10
Friday, March 22 SPM +12.9
Monday, March 25 SPM - 5.1
Tuesday, March 26 SPM +10.3
Wednesday, March 27 SPM -.40
Thursday, March 28 SPM +5.9
Monday, Apr. 1 SPM -6.8
Tuesday, Apr. 2 SPM +8.50
Wednesday, Apr. 3 SPM -15.9
Part of this can be attributed to the lack of thrust after the ESM (e-mini S&P) prints into a new high, but the other part is clearly the algorithms running amok. While the markets have been rolling along, yesterday’s ADP number showed no job growth in the construction industry in March and the homebuilders index has sold off almost 10% since making a five-year high back on March 20. Today we have the ADP number and tomorrow is the March jobs report. Let’s see how this plays out ...
Our view: Was it a good selloff yesterday? Sure it was, but like every selloff this year it was long overdue. At 5 a.m. this morning the S&P is up 7 handles -- can you say “up a day, down a day”? There are a lot of moving parts right now and what we want to do is get to the floor and try and get a handle on the price action. All this stuff out of North Korea is very unsettling and we have some big numbers to get past this a.m. As always, keep an eye on the 10-handle rule and please use stops.
- It’s 7:00 a.m. and the ESM is up 4.75 handles at 1553.25; crude is up 12 cents at 94.57; and the euro is down 28 pips at 1.2825.
- In Asia, 7 out of 11 markets closed lower (Shanghai Comp. -0.11%, Hang Seng -0.14%, Nikkei +2.20%).
- In Europe, 6 out of 12 markets are trading lower (CAC + 0.79%, DAX +0.47%).
- Today’s headline: ‘S&P Futures Seen Higher After Bank of Japan Easing’
- Total volume: 2.26mil ESM and k SPM traded
- Fair value: S&P +5.61, NASDAQ +5.86
- Economic calendar: Challenger job cuts report, ADP employment report, ISM non-mfg index, nat gas numbers, Ester George and Janet Yellen speak
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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