The S&P 500 (^GSPC:SNP) extended its downward slide to a fifth day, falling further in the Globex session to retest the lows of last month. In contrast to the sell-bonds-to-buy-stocks patterns of last year’s final rallies and the rebalancing moves at the start of 2015 which saw funds buy bonds and take profits on stocks, this week has seen both stocks and 10-year Treasury notes slide for five days in a row. The interest rate fell to its lowest level since May 2013.
The S&P 500 fell 0.9 percent to 1,992.67 as of 4 p.m. in New York, the lowest close since Dec. 16. The Dow Jones Industrial Average lost 106.38 points, or 0.6 percent, to 17,320.71. The Nasdaq 100 Index retreated 1.4 percent as Apple (NASDAQ: AAPL) declined 2.7 percent.
It’s not unusual for investors and traders to react to volatility by simply cashing out and waiting on the sidelines, so these drops are not by themselves warning signs of a crash. We saw enough crashes forecast in 2014 that when we finally had the correction in October (which MrTopStep called for back in summer) and the smaller drop in December, they seemed almost anticlimactic. The bigger picture behind the volatility is the movement of money and the faith that it represents.
The Swiss National Bank’s lifting of its cap on the exchange rate between the franc and euro shows recognition of the elephant in the room: that the euro is going to weaken for a while longer until the EU can get past its austerity fixation and start investing in itself. In the short term, that’s bad news for anyone holding euros— and also for many Eastern European homeowners whose mortgages are issued in francs. But in the long run, European exporters may face an advantage from a weak euro at the same time US exports face an increasingly strong dollar.
The volatility that is chopping up the scalpers and other traders unwilling to follow the trend is a sign that money is changing hands, from old reliables like oil and the companies that drill and sell it, to new reliables like … well, that’s the big question, isn’t it?
In uncertain markets, my first instinct (this is Vikram writing) is to trust the charts. Yesterday, the E-mini S&P futures (ESH15:CME) rallied right up to a convergence of several trendlines, one of which is a projection from nearly three weeks ago. It stopped right there and then dropped to my line at 1993, rallied to a line at 2008, then down again, to 1990-96, then all the way to the middle tine of an old-fashioned Andrews’ Pitchfork at 1973. Hey, sometimes old-school lines on charts makes sense. Especially when a swirl of economic shifts overhung by the threat of terrorism and the constant exaggeration of market movements by algos combine to make it hard to make sense of much else.
I can’t tell you what the ECB will decide or how it will combine with a continued oil glut to affect the deflationary spiral threatening to spread from Europe. But I can know with pretty good odds that the market will probably touch 1967, and if it doesn’t bounce there, maybe 1960, and possibly even 1947. If it does bounce, 1984 and 1992 are both waiting. The trend has been friendly to those willing to work with it.
In Asia 9 of 11 markets quoted closed lower and in Europe 6 out of 12 markets are trading modestly higher this morning. Today’s economic calendar starts with the Consumer Price Index, Minneapolis Fed President Narayana Kocherlakota speech on goal-based monetary policy in Golden Valley, Minn, industrial production, consumer sentiment, San Francisco Fed President John Williams remarks at Bay Area Council Economic Institute forecast conference in San Francisco, St. Louis Fed President James Bullard speech on the economy and monetary policy in Chicago and earnings from Goldman Sachs (NYSE: GS), Charles Schwab (NYSE: SCHW), PNC Financial Services (NYSE: PNC), and Wipro (NYSE: WIT).
S&P down 5 in a row, down 9 out of the last 11 sessions
Our view: When the headline appeared last night that two Greek banks had requested emergency liquidity assistance, the ESH15 sold off all the way down to 1970.50. As I tried to explain in the room and on Twitter, all these big rallies and failures could have a wearing effect on the S&P. There are several moving parts right now and it looks like the S&P is heading for its 200-day moving average at 1965 and change. Yesterday crude futures made a high at $51.00 and traded down to $46.39 in Globex, a $4.61 drop. Traders want movement, but even the best traders are saying the movement has been too extreme. With all the increased volume, algorithmic and program trading has exploded, 10-handle moves have become a dime a dozen, and 30- to 50-handle ranges have become the norm.
Our view is that the market hasn’t found support yet and will head sideways and down this morning. But if the 1970-75 level holds up against the short-selling, watch for a possible Late Friday Rip to the upside. If the algos run with it, we could easily see the market back around 2000. But as we said above, if support at the overnight low breaks, it’s 1967, 1960, and 1947. 30 handles in either direction is a distinct possiblity today. Follow the trend and keep your stops tight. Take the small loss quickly. You can always get back in.
Dec 31 -24.3
Jan 2 -6.1
Jan 5 -30.4
Jan 6 -21.5
Jan 7 +25.2
Jan 8 +35.4
Jan 9 -19.7
Jan 12 -12.9
Jan 13 -6.3
Jan 14 -8.6
Jan 15 -18.4
FREE WEBINAR! Why You Should Be Trading Bonds In 2015
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 of 11 markets closed lower: Shanghai Comp. +1.20%, Hang Seng -1.02%, Nikkei -1.43%
- Europe 6 of 12 markets are trading higher: DAX -0.03%, FTSE +0.03%, MICEX +1.24%, GD.AT -2.55%
- Fair value: S&P -6.67 , NASDAQ -7.32 , Dow -73.50
- Total volume: 2.25mil ESH and 8.9k SPH traded
- Economic schedule: Consumer Price Index, Narayana Kocherlakota speaks, industrial production, consumer sentiment, John Williams speaks, James Bullard speaks and earnings from Goldman Sachs (NYSE: GS), Charles Schwab (NYSE: SCHW), PNC Financial Services (NYSE: PNC), and Wipro (NYSE: WIT)
[s_static_display]
No responses yet