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Danny Riley

If you're wondering why the S&P rallied so hard, it’s simple. As soon as the news algorithms locked onto all the headlines about the S&P going higher and S&P 1900, it was game over.


When David Tepper went on CBNC yesterday saying there was more room on the upside we are sure he did not know that the S&P was going to close on a new all-time record high, up 17 handles on the day.

Perfect storm
Coming in we knew Tuesdays were the best day of the week for the S&P, which has been up 15 of the last 18 Tuesdays with an average gain of 9.5 handles. We went with our normal "sell the early rally and buy weakness", but after the open the premium levels between the S&P futures and the S&P cash widened out and in came the buy programs. A large level of mid-month rebalancing and dividend reinvestment combined with David Tepper and Laszlo Birinyi’s positive comments helped propel the S&P sharply higher. It was a nonstop buy program with absolutely no pullbacks. The ESM hesitated at 1640, up over 9 handles from the close, but a few minutes later was ripping higher again.

How high is high?
There is a popular thought process that the reason the markets are continuing higher is that-no one is long. That indeed may be true, but there is also another side to it: The public continues to wait for a pullback that never comes, and when they do start buying it comes in a big blast like yesterday. We all say the S&P is going higher, but when it starts ripping what do we do? We start looking for a place to sell. I have to admit that while I have been bullish all the way up and have been a big proponent of not fighting the Fed printing presses, I too am astounded by both the size and the speed of the most recent leg up. The S&P has made a new high almost every day for the last two weeks.

Never seen this act before
Yesterday I asked the Pit Bull if he had ever seen a meltup like we have been seeing in the S&P and his answer was a flat-out "No." His frustration is like many. All the technical work points to higher prices, but with the S&P up over 135% since the October 2009 low and the S&P up over 15% this year, it makes it very hard to chase. I have seen some big bounces during my career but I have never seen the likes of the current rally. The yen at a 4-1/2 year low against the dollar, bond yields ripping higher (10yr up to 1.98), crude down and weak commodity prices make up a very confusing landscape.

Nothing works when the S&P is on a mission like it was yesterday. The only signal was a buy signal. Like it or not, believe it or not, the markets are powering higher; yesterday was NASDAQ 3,000. Like we said in January, if you want to know where the S&P is going, just follow the money.

Our view: Wow, the S&P continues to impress on the upside. We have been bullish all the way up, but even we are blown away by the overall bullish price action. There is only one side to this trading card and it’s the buy side. Not that the last few days mattered, but the Ned Davis S&P cash study shows today as being up 15 / down 14 of the last 29 occasions. We know we have been thrown off looking for a pullback, but so has everyone. The S&P is up 80 handles in 10 trading days, so anyone that sold got smoked. Our view? We know the S&P is going up, but it’s still long overdue for a pullback. In most cases after such a big move up like yesterday there is a tendency for the S&P to trade sideways to lower. Keep an eye on the 10-handle rule and please use stops.

  • It’s 7 a.m. and the ESM is trading 1646.50, down 1.5 handles; crude is down 1.02 at 93.19; and the euro is down 88 pips at 1.2855.
  • In Asia, 9 out of 12 markets closed higher (Shanghai Comp. +0.35%, Hang Seng +0.50%, Nikkei +2.29%).
  • In Europe, 8 of 12 markets are trading higher (CAC +0.15%, DAX -0.02%).
  • Today’s headline: "Global Stocks Climb; BOE’s King Sees UK Recovery"
  • Total volume: 2mil ESM and 10k SPM
  • Economic calendar: MBA purchase apps, Producer Price Index, Empire State mfg survey, Treasury international capital and the nat gas number.
  • Fair value: S&P -0.99, NASDAQ +0.75
  • MrTopStep Year To Date S&P 500 Net Changes: http://mr-topstep.com/images/2013/May/mtsop-05142013-netchanges.jpg

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.