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We have learned a lot and lost a lot of money since the U.S. Senate report that Goldman Sachs mortgage traders tried to manipulate prices of derivatives linked to sub-prime home loans in 2007 -- creating derivatives products that would make money on mortgage securities that fell in price, betting against their own customers and the American dream of owning a home. In 2007, Goldman structured group trader Deeb Salem sent an e-mail to Michael Swenson urging other traders to offer prices that will "cause maximum pain" and "have people totally demoralized." Well, Deeb, job well done ...

Maximum pain: Six years later that "maximum pain" has shown up all over the world. Retirees in the U.S. sat by while 50% or more of their money went up in smoke. All because some kids on Wall Street had figured out how to sell their clients mortgage-linked securities investments they knew were going to blow up. Is this how this is game is supposed to be played? We all know what happened after the securities started to plummet; two funds that specialized in subprime investments collapsed, forcing Bear Stearns out of business, with Lehman Brothers following soon after.

S&P proving the world wrong: Since the March 2009 low the S&P futures have been proving the world wrong. The S&P has taken every piece of bad news, sold off and then "back and filled," making higher lows for the last 4 years. Some may question the S&P 500's longevity, but the charts say it all. Despite all the setbacks and economic downturns the S&P 500 remains the No. 1 index in the world. Late in the day Friday the S&P futures traded up to a new high at 1499.10, setting up the longest winning streak since 2004. In the first 17 days of trade the S&P has closed higher 13 and has been up 11 out of the last 12 sessions or up 8 in a row, making it the longest winning streak since November 2004. The S&P cash (GSPC) broke through the 1500 level on Thursday for the first time since December of 2007. While the S&P is overbought and extended, as is clearly shown in the RSI readings at 74.41, at the same time new money flowing into stocks in the first 3 weeks of the year has continued at a record pace. The S&P has gone a long way and overcome so many obstacles over the last few years, but many feel that with the excessive bullish sentiment and a 116-handle rally in three weeks, it may be time for a pullback. Starting last Wednesday the buy imbalances we have seen all year started to shift. Last week the Dow 30 imbalance started to shift from buy imbalance to mixed, to sell imbalances and this was capped off with the first broader market $1bil sell imbalance of the year on Friday's close. Up to that point almost all the imbalances had been on the buy side.

Inflows a contrarian indicator: Following inflows this year has been a good indicator, but overall that's not how it works. In fact, many consider them a contrarian indicator. On Friday the S&P fell 5 handles short of our 1504 upside objective. While we still remain bullish, Friday's 1bil to sell could be an indication that smart money could be taking some money off the table.

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.

Our view: The S&P is on the march. There has been absolutely no letup in the current price action. Today's economic calendar starts off with the durable goods number. With the exception of Friday's big sell imbalance, we see no change in the current uptrend. Our view is to sell the early rally and then look to buy weakness. At some point you have to be prepared for a big down day, so keep your stops tight. As always, keep an eye on the 10-handle rule.

  • It's 7 a.m. and the ESH is trading 1498, up 2.25 handles; crude is up 28 cents at 96.16; and the euro is down 27 pips at 1.3442.
  • In Asia, 6 out of 9 markets quoted closed higher (Shanghai Comp. +2.41%, Hang Seng +0.39%).
  • In Europe, 8 out of 12 markets are trading modestly higher (CAC+0.02%, DAX -0.04%).
  • Today's headline: "S&P Futures Little Changed, Durable Goods On Tap"
  • Total volume: 1.57mil ESH and 11k SPH traded
  • Fair value: S&P +0.29, NASDAQ +2.32
  • Economic calendar: Today: Durable goods orders, pending home sales index, Dallas Fed mfg survey, 2-yr note auction, AMR restructuring plan deadline; earnings from Caterpillar, Yahoo, BMC Software. TUESDAY: S&P Case-Shiller home price index, consumer confidence, 5-yr note auction, FOMC mtg begins; earnings from Ford, Eli Lilly, CIT Group, Corning, DRHorton, Nintendo, Peabody Energy, Valero, AK Steel, Amazon.com, Broadcom.

Mr Top Step Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-1-25-2013

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