ES 03-15 (15 Min)  1_7_2015

New Years bring new problems and don’t always start out the way you would like them to. The stock market’s 2015 start is the worst since the 2008 credit crisis. The S&P 500 futures have fallen four days in a row for a total loss of 82.3 handles, the longest losing streak in more than a year.

The slide in crude oil prices has many traders concerned about global growth. At the same time European shares continue to lag amid concern about Greece’s political future. As I pointed out in the final days of December, the big mutual funds and investment firms started buying bonds and selling stock. This asset reallocation has gone on the last six trading days. Yesterday the 10-year note briefly traded below 1.9%. This rotation into less risky bets has dominated the beginning of the year. While the S&P futures have been down four in a row, the S&P cash and Dow Jones Industrial Average have fallen for five straight— their longest losing streaks since December 2013.

What’s this all add up to? I believe this is mainly institutions taking some profits after a nearly 40% bull run in the S&P over the last two years. I also think that crude oil may have seen a short-term low. The history of the S&P been to get people shorting the decline, I feel that has happened now. Additionally, the algorithmic program traders have run a lot of sell stops over the last few days and as we go into the end of the week we expect to see the PitBull Thursday/Friday low the week before January options expiration. There has to be two-way flow. Is the decline over? That all depends on what crude oil does the rest of the week.

In Asia 7 of 11 markets closed higher and in Europe 7 of 12 markets are trading higher this morning. Today’s economic calendar includes the MBA purchase applications, ADP employment report, Gallup US job creation index, international trade, EIA petroleum status report, FOMC minutes, Charles Evans speaks and Alcoa kicks off the earnings season on Jan. 12. Today’s earnings include Monsanto (NYSE: MON), SuperValu (NYSE: SVU), RPM International (NYSE: RPM), and WD-40 (NASDAQ: WDFC).

Our view: Yesterday we started to see some back-and-fill price action for the first time since the end of December. I have been off on my calls and therefore will make today’s view short and sweet. I think the S&P and crude oil have the potential to continue higher. Yesterday I some bought cheap calls and plan on holding onto them into the PitBull Thursday/Friday low and maybe into Monday of next week. My view is that both the ES and CL are very oversold.

Dec 26 +5.4
Dec 29 + 1.6
Dec 31 -24.3
Jan 2 -6.1
Jan 5 -30.4
Jan 6 -21.5

“Crude Oil and S&P Take Another Duck”

January expiration study: https://mrtopstep.com/january-expiration-statistics/

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

  • In Asia 7 of 11 markets closed higher: Shanghai Comp. +0.67%, Hang Seng +0.83%, Nikkei +0.01%
  • In Europe 7 of 12 markets are trading higher: DAX +1.12%, FTSE +0.89%, MICEX +3.14
  • Fair value: S&P -6.40 , NASDAQ -6.06 , DOW -72.16
  • Total volume: 2.34mil ESH and 11.7k SPH traded
  • Economic schedule: MBA purchase applications, ADP employment report, Gallup US job creation index, international trade, EIA petroleum status report, FOMC minutes, Charles Evans speaks and Alcoa kicks off the earnings season on Jan. 12. Today’s earnings include Monsanto (NYSE: MON), SuperValu (NYSE: SVU), RPM International (NYSE: RPM), and WD-40 (NASDAQ: WDFC).

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