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‘Flunk-a-dunk’ on first trading day of the year isn’t unusual

ES 03 14 3 Min 1 3 2014 Flunk a dunk on first trading day of the year isnt unusual
ES 03 14 3 Min 1 3 2014 Flunk a dunk on first trading day of the year isnt unusual

The S&P [^GSPC:SNP] closed down on the first trading day of the year for the first time in five years, as crude oil tanked.

I’ve seen over many years of trading the S&P that yesterday’s first-day “flunk-a-dunk” is not out of the ordinary. The S&P is firm all year and once the new calendar year starts, in comes the selling. With a full year ahead of us, we don’t think it will be a straight line up as it was in 2013.

The Asian markets closed mostly lower and in Europe 10 out of 12 markets are trading higher. Today’s economic calendar starts out with motor vehicle sales, Federal Reserve Gov. Jeremy Stein speaks at 10:15 ET, Charles Plosser speaks at 10:15, the natural gas report and EIA petroleum status report get released at 10:30 CT, then more Fed speak: Jeremy Stein speaks again, Charles Plosser speaks again at 12:45 CT, Jeremy Stein follows at 1:15 ET, Jeffrey Lacker speaks at 1:30 ET and finally, Ben Bernanke speaks at 2:30 CT.

Things to come

While we never believed the S&P could go down last year, the expected seven Fed meetings and seven $10 billion tapers could and will be a problem for the stock market in the coming months. Initially as the process moves further down the line and the Fed-supplied liquidity dissipates, we do expect the S&P to start selling off. As I said yesterday, I hope this is not leading to another “flash crash” scenario. That said, I do expect the S&P to regain its footing after the markets sell off or pull back.

Bears gotta eat, too

The bears were licking their chops yesterday as the ESH14 started to sell off. While the 1.22mil ESH13 is a big uptick from the 600,000 or so minis traded a day over the last 8 trading sessions, the total volume CLEARLY shows that not all the players are back in the market. As the weather hitting the Midwest moves east, we expect even fewer people to be trading today.

It will be important to look at your trading ladders to determine the depth of the S&P today, because after a big down day the S&P tends to trade sideways to higher. Keep a close eye on volume — if it is light like I expect, then “thin to win” may be the call for the day.

Our view

Look, go slow. There is no reason to start losing money when so many people are not trading. The weather will play its part today.We have a full year ahead of us and I do not expect the S&P to just fall apart. Sure the bears got some fresh meat, but this rally is not over. We lean to selling the early rally and buying weakness.

As always, please don’t forget the 10-handle rule and use stops …

  • In Asia, 9 of 11 markets closed lower: Shanghai Comp. -1.24%, Hang Seng -2.24%, Nikkei +0.69%

  • In Europe 10 out of 12 markets are trading higher: DAX +0.49%%, FTSE +0.36%

  • Morning headline: “First day market drop breaks streak but not uncommon”

  • Total volume: 1.22mil ESH and 10k SPH traded

  • Economic calendar: Motor vehicle sales, Federal Reserve Gov. Jeremy Stein speaks at 10:15 ET, Charles Plosser speaks at 10:15, the natural gas report and EIA petroleum status report are released at 10:30 CT, then more Fed speak: Jeremy Stein speaks again, Charles Plosser speaks again at 12:45 CT, Jeremy Stein follows at 1:15 ET, Jeffrey Lacker speaks at 1:30 ET and finally, Ben Bernanke speaks at 2:30 CT.

    • E-mini S&P 5001830.00+9.25 - +0.51%

    • Crude98.55-0.22 - -0.22%

    • Shanghai Composite0.00N/A - N/A

    • Hang Seng22712.779+28.629 - +0.13%

    • Nikkei 22515814.37-94.51 - -0.59%

    • DAX9506.20+78.20 - +0.83%

    • FTSE 1006755.45+24.72 - +0.37%

    • Euro1.3615

     Flunk a dunk on first trading day of the year isnt unusual
    Flunk a dunk on first trading day of the year isnt unusual