10% Corrections in the S&P 500: Few and Far Between

The 6-year bull market has some cracks, but the S&P still wants to go higher.  2015 could be a challenging year …

There have not been many 10% corrections in the S&P 500 futures (ESH15:CME ) recently. In fact, it has been the 5th longest period in the last 50 years without one. I started in the S&Ps in 1985 and have been part of every major stock market move over the last 30 years. I do not believe there has has been a time like the current bull market with its lack of corrections.

It’s been 40 months since the last 10% correction in the S&P, and while we almost saw one at the end of September and the beginning of October, the S&P again did what it does best: it stopped short and rallied to all-time new highs by late December. That’s how this bull market works.

As the bull market heads into its 6th year it seems like things may not be that easy. When the S&Ps got off to a rough January no one even mentioned the possibility of a 10% decline. That type of complacency will eventually end badly, but as traders, we live in the here and now, and that means rolling with the punches. Like it or not, 10% declines have been nonexistent.  Is that going to change?  I think it is already changing, but that doesn’t mean the S&P can’t go to 2200 or higher by the end of the year.  We continue to think 2015 is going to be the year of the VIX.

Be patient traders, pick your spots better, use proper trade management and always use protective buy and sell stops when trading. It’s one thing to take a daily or a weekly hit, but when you hold on to losers, you lose. Get in, get out and most of all don’t fall in love with your positions.

Our View

We were right to say sell the early rallies, but the “buy weakness” thing didn’t work all that well. While we did see a few lows and bounces, the overall tone of the S&P was weak. On Wednesday, there are 3 big events. The first is the Eurozone financial ministers’ meeting on how the Greek government will provide Europe with specifics to its economic plan. Second is the beginning of the end for the earnings season with AMAT, CSCO, NTAP, and NVDA all after the close. And third is the meeting in Minsk between Ukraine, Germany, France and Russia. Based on the current price action we expect lots of movement, but we have to get past today first.

Despite some big negatives floating around, the S&P is holding. The S&P sells off and then bounces late in the day when the cash buyers show up before the 2:45 cash close.  It works that way, as you know. Our view is to sell the early rally, but look for a good stop to be a buyer. The buy stops are building back up above 2050. They start around the 2048.70 level to 2053- 2054. We already saw a run up to 2058 around 6 AM CT.  Additionally, the February expiration stats are very positive for a rally Friday through Tuesday.

…View the February expiration stats here…

There is no fighting the tape. The problem is how quickly the mutual funds move from sector to sector.

S&P 500 CHOP SHOP

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

• In Asia 6 of 11 markets closed lower: Shanghai Comp. +1.50%, Hang Seng +0.03%, Nikkei -0.33%
• Earlier in Europe 8 of 12 markets were trading higher: DAX +0.13%, FTSE -0.52%, MICEX +0.88%, Athens GD.AT +2.31%
• Fair value: S&P -4.76 , Nasdaq -3.60 , Dow -60.04
• Total volume: LOW 1.28mil ESH and 5.3k SPH traded
• Economic schedule: Jeffrey Lacker speaks, Redbook, NFIB Small Business Optimum Index, JOLTS, Wholesale Trade, 3 Yr-Note auction and earnings from The Coca-Cola Company (NYSE: KO), CVS Health Corporation (NYSE: CVS), and AECOM (NYSE: ACM).

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