Maybe I didn’t explain it correctly, or maybe it just sounded too stupid, but the MrTopStep Walk Away trade worked according to plan. As traders, we live in an ever changing environment where things that used to work don’t any more. Retooling and keeping an open mind is the only way a trader can make it.
Like always, I could do all the Fridays net changes, but I’ll make it easy. All the major averages closed down -040% to -0.50%. Despite that weakness, the Dow Jones, S&P 500, and Nasdaq all saw record gains for the month of October. The bear killer never let the bulls off the hook all month.
Friday saw an overnight run higher, past the Wednesday post FOMC high, but failed during the Euro session, opening the regular trading hours 10 handles from the high back at the globex open. Soon after the open, and making an early low, the S&P’s continued higher trading back up to 2088.25. It looked like maybe a late Friday RIP was in store, but shortly after the 1:00 CT hourly open the MiM (market-imbalance-meter) came on line showing a $1.5 Billion sell imbalance. Almost immediately the futures began to sell off and flunked lower almost 20 handles from the cash session high, and 25 handles from the globex high, as money was exiting the equity markets on some month end profit taking on a historical performing bear killer month.
November & 2100
From the August 24th low I always expected a retest. While the futures came within about 30 handles of that retest, the cash index did in fact make a retest in late September, trading within 4 handles of its August lows. From there we entered into October, and while I was concerned that volatility could erupt, I began to warn everyone very quickly as money was flooding into the markets to be careful of shorting an October rally. I noted that last year when the index futures made their October low, it traded 30+ sessions with only a single 10 handle losing day until the early December pullback. This October, there were only two 10 handle losses, while 8 sessions closed higher by 10 handles or more. Furthermore, similar to last year the indexes went almost straight up while seeming to be overbought, could never sustain an offer.
Throughout the year I have been mentioning the 2100 pivot in the S&P futures. In fact, ever since first touch of that level in early February the futures spent 27 consecutive weeks trading within 25 handles of that level, with most of the weeks trading on both sides of that price. I noted in the Summer how volume increased while below 2100, and above that price volume would decrease and price would chop.
Heading into November, that 2100 level is again pivotal, and I believe that the S&P 500 will again be trading above that level sometime in the month. If history is any indication we are in store for a very quiet November that will continue to lean higher on lower volume above 2100, and tighter ranges, similar to what we have seen this week as the S&P marches to my year end target of 2175. That’s not to say that we won’t get a small pullback in early November, but at this point the seasonality is taking effect as the year end bonus is in target, and with the equity markets having processed a troublesome earnings season, and two months of disappointing job growth, what’s left to keep the markets from going higher?
In Asia 8 out of 11 markets closed lower (Shanghai Comp. -1.70 %), and in Europe 10 out of 12 markets are trading higher (DAX +.92%). This week we have an extremely high level of economic and earnings reports. There are a total of 22 economic reports, 9 T Bill or T Bond Auctions or announcements, 10 Fed Governors or bank presidents speaking, several names in the S&P 500 report earnings this week, and the October jobs report. Today’s economic calendar includes a 2-Yr Note Settlement, a 5-Yr Note Settlement, a 7-Yr Note Settlement, PMI Manufacturing Index, ISM Mfg Index, Construction Spending, 4-Week Bill Announcement, 3 Month Bill Auction, 6-Month Bill Auction, and earnings from Avis Budget Group Inc (CAR), Berkshire Hathaway Inc (BRK.A), Cardinal Health Inc (CAH), Dominion Resources Inc (D), Visa Inc (V), and Zillow Group Inc (ZG).
BIG FIGURE 2100
Our View: It looks (looked) like the ESZ made a high on Friday. The MiM had it nailed with $1.5bil for sale, and the futures went flying down to 2070.00, and then the MiM flipped to $1bil to buy and the futures rallied back up to 2074.00. Historically the first two weeks of November are bullish, but after last month’s record push higher, the ES may not go up so fast, or right away. Then again, shorting this market requires precision that many of us don’t have. We still lean to buying weakness but are looking for opportunity to sell some RIPS.
As always; please use protective buy and sell stops when trading futures and options.
The S&P 500 Futures, Is The High In?
- In Asia 8 out of 11 markets closed lower : Shanghai Comp. -1.70%, Hang Seng -1.19%, Nikkei -2.10%
- In Europe 10 out of 12 markets are trading higher : CAC +0.50%, DAX +0.92%, FTSE -0.31% at 7:00am CT
- Fair Value: S&P -6.39 , NASDAQ -9.49 , Dow -84.08
- Total Volume: 1.75mil ESZ and 8.9k SPZ
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