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THE S&P 500 FUTURES, T+3 AND S&P 1600

Danny Riley
Recent milestones

The Pit Bull has been saying for a long time that the S&P futures move around like water in a bathtub. They push the water one way and it comes right back. It is the best analogy for what we have been seeing.

When they pumped up the downside volumes over the last few weeks, the bears were licking their chops. The 60+ handle selloff from the new contract highs was long overdue, and headlines only fanned the fire.

False Starts
Everyone gets them. The big accounts, the small accounts, even the market timers. They come fast and they always cost you. They are the dreaded false starts, and so far in 2013 every selloff has been part of one. We said after the S&P made its 1593-1594 highs that we did not think it was going to trade 1600 right away, but who could have known what was going to unfold? After the ESM started to break 1560 we said it could see a retest of the 1533.25 low, and it traded 1531, but who could have guessed only five trading days later the future would be up trading 1588? Yesterday nine out of 10 S&P sectors closed higher.

OMT Bond Buying Program
After hitting an intraday high of 1588, the ESM pared its gains following a report in the German press that Bundesbank President Jens Weidmann sent a letter to Germany’s constitutional court criticizing the European Central Bank’s Outright Money Transactions, or OMT. Weidmann said the OMT could affect the independence of the central banks and devalue the sovereign debt of countries in the program. The OTM bond buying program was set up by the ECB to buy the debt of governments that apply for help from the European rescue fund. After a 11+ handle selloff, the ESM bounced back up to the 1583 level, then sold off a few handles after the 2:45 imbalance showed MOC sell $100mil. Despite the headline, the S&P futures still closed up 7.6 handles.

Earnings Season
Despite lower expectations and a prediction of a negative earnings season for the S&P, the numbers are coming in better than expected. Over the last few days it is clear to see the earnings are supporting the markets again. After getting hit by some bad news last week and seeing some profit-taking, it looks like the same sellers have been repurchasing on the way back up. Like the sellers in the S&P futures, there has been a mad rush to cover short positions and establish long positions.

Like Water in a Bathtub
Last week the S&P futures were down 3 out of 5 trading days with heavy losses, but including last Friday's close the S&P has closed higher 5 days in a row.

Monday Apr.15 SPM -38.4
Tuesday Apr.16 SPM + 25.2
Wednesday Apr.17 SPM -22.6
Thursday Apr.18 SPM -12.1
Friday Apr.19 SPM +13.6
Monday Apr.22 SPM +8.3
Tuesday Apr.23 SPM +17.7
Wednesday Apr.24 SPM +.50
Thursday Apr.25 SPM 7.6

The Pit Bull has been saying for a long time that the S&P futures move around like water in a bathtub. They push the water one way and it comes right back. It is the best analogy for what we have been seeing. There has been another round of talk that the S&P could trade 1600 before the end of the month; that means it will have to trade back above 1593 to start hitting out the buy stops above that price. Should that happen, we feel strongly that move will happen very quickly.

Our view: The Dow hit another new intraday high at 14,768 yesterday -- did you see anyone cheering? We didn't. This morning we have the GDP and consumer credit numbers. So far this year 11 of the 15 Fridays have closed higher. Our view is that there may be some early selling around, but after that dries up and the markets go quiet the ESM will start to drift higher again. There is a boatload of buy stops that start above 1589.70 up to 1596. As always, keep an eye on the 10-handle rule and please use stops when trading futures.

  • It’s 7:15 a.m. and the ESM is trading 1577.50, down 4.25 handles; crude is down 38 cents at 93.26; and the euro is down 19 pips at 1.3002.
  • In Asia, 6 out of 11 markets closed lower (Shanghai Comp. +0.65%, Hang Seng +0.65%, Nikkei 0.30%).
  • In Europe, 12 of 12 markets are trading lower (CAC -1.05%, DAX -0.52%).
  • Today’s headline: “S&P Futures Seen Lower Ahead of GDP Numbers”
  • Total volume: 1.6mil ESM and 11k SPM traded
  • Economic calendar: GDP, consumer credit
  • Fair value: S&P -1.91, NASDAQ -7.21

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.