Trend Day 100

I am writing this early today because the outcome of where the futures close really doesn’t matter. What matters is how the S&P, the world’s leading stock index, pushes back against the threat of a Greek default and a China implosion. Since Aug 24th, the S&P futures have rallied 280 handles, or 11%. From its September 29th 1861 retest the futures have rallied 247 handless. If there is a lesson to be learned, it’s that the S&P is extremely resilient, and  if you’re willing to take on risk when the markets are falling, you will get paid.

It’s 7:40 CT Tuesday, and the MrTopStep Money Maker chart on the ESZ15 is showing three separate buys at the 2089.00 level, and the futures just popped back to 2092.00. There are very few futures / day traders that are long the S&P, and with it ‘up so much’ what are they doing? They are selling the rallies and then following the trade up by putting in buy stops. Like most big rallies, the higher the ES goes, the lower the volume gets. With actual S&P cash buyers, the futures make a high, pull back a ‘few ‘ handles, then go after the next set of buy stops that are sitting just above. It’s a very hard game to play, and you have to be willing to take small profits, generally not as much as you’re risking.

So where from here?

I think it’s important to look at the overall price action of the S&P. Many well-known market timers have been pointing out that with such big gains in October, November may not go so well. I disagree. No, the S&P will not gain 9%, but until something changes, we are not sure things won’t just continue to grind higher. The stats for November show most of the months gains come in the first and last week of the month. Also, according to Goldman Sachs Group Inc., nearly 25% of all annual buyback activity happens, on average, in the final two months of the year. With low job growth, and the fed unable to raise interest rates, it’s back to ‘nowhere to go but stocks.’ This is understandable, but the speed of the rally has totally left most trades in the dust. After taking big losses in August, and the selling that continued in September, many big accounts adjusted their positions for more downside. Many of the big hedge funds got out with big losses, but never got long. Furthering the idea that stocks are going up.

The ESZ15 just traded up to a new high at 2110.00. The guests and commentators on CNBC are calling for S&P 2300.00 by the end of the year. Based on their prior predictions that the S&P was setting up for a global crash, this probably means that the S&P is getting close to making some type of short term high. MrTopStep admits when he’s wrong, or makes a bad trade, as a trader that is how it has to be, but the more I see people from CNBC talk higher prices in the S&P after a 11% rally, it makes me rethink how much higher it can go. The CNBC Bad Call Sentiment Indicator is bullish, that must mean it’s time to sell.

Conclusion; We think the ESZ may actually be getting close to making a high. Yesterday’s late profit taking looked like the buyers ran out of buying power. This may or may not happen today, but as the week wears on, so will the ESZ.

In Asia 10 out of 11 markets closed sharply higher (Shanghai Comp. +4.31%), and in Europe 10 out of 12 markets are trading higher (DAX -0.19%). Today’s economic calendar includes Federal Reserve Gov. Lael Brainard on panel discussing bank supervision, at ECB in Frankfurt, MBA Mortgage Applications, ADP Employment Cost, International Trade, Gallup US Job Creation Index, Treasury Refunding Announcement, 3 and 10- Yr Note Announcements, 30-Yr Bond Announcement, Philadelphia Federal Reserve Bank President Patrick Harker speech on social innovation capital, in Philadelphia, PMI Services, Federal Reserve Chairman Janet Yellen testifies before House Financial Services Committee on regulatory issues, ISM Non-Mfg Index, EIA Petroleum Status Report, 2-Yr Note Auction, New York Federal Reserve Bank President William Dudley press conference on economic outcomes, Federal Reserve Vice Chair Stanley Fischer speech to National Economists Club, in Washington and a BOAT load of earnings from Avon Products Inc (AVP), Blackrock Capital Investment Cor (BKCC), Chesapeake Energy Corp (CHK), Facebook Inc (FB), Liberty Media Corp (LMCA), Lumber Liquidators Holdings Inc (LL), Marathon Oil Corp (MRO), Masonite International Corp (DOOR), MetLife Inc (MET), Michael Kors Holdings LTD (KORS), Motorola Solutions Inc (MSI), QUALCOMM Inc (QCOM), Rosetta Stone Inc (RST), Sun Life Financial Inc (SLF), Sunoco LP (SUN), Thestreet.Com Inc (TST), Time Warner Inc (TWX), Transocean LTD (RIG), Vitamin Shoppe Inc (VSI), and Wendys Co (WEN).

JOBS WEEK HIGH

Our View: Short and sweet; I think the next 30 to 40 handles off the 2110 high will be down. There is a flood of earnings and economic reports today, including the ADP number, which could give us clues to Fridays jobs report. I am sticking to my guns, clearly the ES is up too high to buy, and too firm to sell. Our view is to sell rallies and buy weakness with the idea that the ESZ15 is ‘extremely overbought’ and nearing a turning point.

ICEchat ( 3:31:17 PM ): (driley) The CNBC Bad Call Sentiment Indicator is bullish, that must mean it’s time to sell
ICEchat ( 3:43:01 PM ): (driley) I think the next 30 to 40 handles will be on the downside
ICEchat ( 3:43:53 PM ): (driley) The ESZ ran all the buy stops up to 2110 and now the stops are building up on the downside
ICEchat ( 3:44:06 PM ): (driley) This is just my gut feeling
ICEchat ( 3:50:25 PM ): (driley) Friday jobs report coming, there is going to be a pull back everyone too long into the rally

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

 

    • In Asia 10 out of 11 markets closed higher : Shanghai Comp. +4.31%, Hang Seng +2.14%, Nikkei +1.30%
    • In Europe 10 out of 12 markets are trading higher : CAC +0.92%, DAX -0.19%, FTSE +1.09% at 6:00am CT
    • Fair Value: S&P -5.83 , NASDAQ -8.56 , Dow -76.38
    • Total Volume: 1.33mil ESZ and 7.1k SPZ

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