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Stocks reach new highs; bonds, VIX, and volume fall

Danny Riley
8 21 14 am chart 1024x493 Stocks reach new highs; bonds, VIX, and volume fall

With the exception of a few hiccups it seems like that markets are always making new highs. As of todays close the S&P is up 290% since making its March 6, 2009 low of 683.38 (^GSPC:SNP), the Dow is up 256% and the Nasdaq is up 350%.  I asked a question to the MrTopStep trading room yesterday: what was more severe, the selloff down to 1890.25 or the rip back up to 1983? I say the rip…

The Dip and the Rip

Just after the FOMC minutes were released, the S&P reacted to the headline that the Fed might raise rates sooner. But the reality of this is, they can’t. After the headlines the S&P did what it does best; it reversed back up and made new highs for the day but stopped short of taking out the Emini contract high of 1985.25 (ESU14:CME) later topping it by 1 tick. Despite $400 million to buy on the close, the ESU14 sold off to the 1982 area. I have been constantly talking about how all the selloffs do is help build up the buy stops and the S&P’s price action showed exactly that. The ESU14 starts to sell off, hits some small sell stops and triggers some small index arbitrage sell programs. The futures look weak, sell off further, and then do a double-bottom retest and rip to new highs. It doesn’t matter if it’s a big or small sell off the end result is the same. Look back over your charts and you’ll see the pattern recurring.

Dog Days Of August

My concern is that as we going into the later parts of the week and as the clock ticks down on August that more people are going to do what I am doing—taking time off. The already record low volumes will continue lower and that the index markets could explode to the upside. “Thin to win” on steroids.

The Asian markets closed modestly higher while 12 of 12 European markets are trading higher. Today’s economic and earnings calendar is the largest of the week. It includes the Jobless Claims number, PMI Manufacturing Index, Philadelphia Fed Survey, Existing Homes sales, Leading Indicators, EIA Natural Gas Report and earnings from Gap (NYSE: GPS), Hormel Foods (NYSE: HRL), and Dollar Tree (NASDAQ: DLTR).

Buy the Dips, forget selling the Rips

Our view: They say you’re always supposed to fade the first Fed headlines; that if the S&P drops first you’re supposed to fade the selloff and buy into it. If you did that yesterday, you caught a big time rip. Congrats to you! And for those of you who continue to fight City Hall I am sorry but it doesn’t look like you will be getting a reprieve anytime soon. While it was the third higher close in a row for the S&P it was also accompanied by the third lowest volume day of the year for the NYSE. With the Vix dropping and the volume disappearing it potentially could create an upside vacuum. Only time will tell, but there is nothing that tells us to start betting on the downside.

The S&P futures have closed higher 8 out of the last 11 sessions, up 4 out of the last 5 or up 3 in a row. The rally has been a bone crusher and it doesn’t look like its ready to stop. Right now the ESU is in need of a pull back but if the same price action persists today it will be easy pickings to S&P 2k.

MTS Video 1  S&P 500 – To Infinity And Beyond

MTS Video 2  FED Minutes Throw Cold Water On S&P New Highs

Video: Rithmic Webinar today

As always, please use protective buy and sell stops when trading futures and options.

  • In Asia 6 of 11 markets closed higher : Shanghai Comp. -0.44%, Hang Seng -0.66% , Nikkei +0.85%.
  • In Europe 12 of  12 markets are trading higher : DAX +0.48%, FTSE +0.33%, MICEX +0.88%
  • Fair Value: S&P -2.84 , NASDAQ -0.89 , DOW -26.23  
  • Total Volume: LOW 1mil ESU and 2.4 K SPU traded
  • Economic and Earnings Calendar: Jobless Claims, PMI Manufacturing Index Flash, Philadelphia Fed Survey, Existing Homes Sales, Leading Indicators,  2, 5, 7 Yr-Note Announcement, 5 Yr-Tips Auction, Fed Balance Sheet, Money Supply and earnings from Gap (GPS), Hormel Foods (HRL), and Dollar Tree (DLTR).
  • E-mini S&P 5001996.75+1.75 - +0.09%
  • Crude104.30-0.12 - -0.11%
  • Shanghai Composite0.00N/A - N/A
  • Hang Seng25074.50-92.41 - -0.37%
  • Nikkei 22515521.22-92.03 - -0.59%
  • DAX9530.93+20.79 - +0.22%
  • FTSE 1006802.49+27.24 - +0.40%
  • Euro1.32
Stocks reach new highs; bonds, VIX, and volume fall