As the first quarter ended with a little “bump and grind,” the S&P broke a five-day losing streak on Friday. The numbers: Mar 21 -9.1, Mar 24 -7.6, Mar 25 -9.8, Mar 26 -16.7, Mar 27 -2.0, followed by a rip up on Friday, March 28 +9.8. The question is, is the decline over?
Last Friday the S&P cash [SNP:^GSPC] closed up 8.58 points, or up +0.50%. The Dow Jones Industrials [DJI:^DJI] closed up 58.83 points, or +0.40%, and the Nasdaq Composite [CME:NQM14] inched up 4.53 points or +0.01%.
All week the mutual funds sold the four-letter stocks and on Friday the funds starting buying them back. The big question today is, do the funds buy or sell on the last trading day of March?
There has been a clear rotation out of the growth stocks and into value stocks. Last year and up until a few weeks ago the biotech stocks were one of the most favored sectors of the Nasdaq.
Last week the Nasdaq lost -2.8%, its worst weekly loss since October of 2012, with the Nasdaq Biotechnology index seeing its worst weekly loss since August 2011: down 7%.
Where are we at?
Where are we at as we go into the second quarter of 2014? After all the hard drops and big rips, the S&P is down 1.1% from its March 7, 2014 close and amazingly, still up +0.50%. On the year the Dow is down 1.53%, recovering from the 1000-point range of January. The Nasdaq is down 0.50% year to date.
At the end of all this the S&P futures started out the year at 1850. If you look at a 3-month chart of the CME Group’s ES contract, it had a spike down to 1730 and a rally to new contract high at 1877.50 and is currently stuck in a trading range of 1840 to 1870 with anything above or below as an extreme.
Being honest as a trader
I have been thrown off by the recent chop and as a trader I think it’s important to talk about it. I have always taken the approach that you can’t “say buy ’em here and disappear.” If I am wrong I say it.
Over the years some of the very best traders on the CME and CBOT have left the floor and found it too hard to trade electronically. I know several S&P locals who say it to me all the time., that when they trade on a platform they make less than they risk. I understand that, but that statement doesn’t apply just to past or current floor traders but to everyone who trades.
Having the proper risk/reward ratio is an important part of trading. In the pit a local would take a 50-lot of the SPM if he felt he had an edge. But there is no such edge on a platform, just timing and picking your levels. Recently I found myself selling where I should be buying. If you ask the PitBull, I am able to give him what I have always done for him: a feel for the market’s direction. I have been right on when I talk the S&P to him or to the traders in the MrTopStep Trading Room, but my trading has been far less accurate.
I get mad at myself, but that’s not the thing to do. The thing to do is to take a step back. When it becomes OK to lose, it’s time to reevaluate your trading. Take time off and start going back to the basics of having a trading game plan. I know that sounds funny, but I compare it to going to a knife fight without a knife; you’re sure to get wounded.
I am lucky though. Many of you, when your trading goes bad, don’t have a “collective” of traders to back you up. I do: Kathy Garber from Structural Trading and Frank Ochoa the PivotBoss are right there. Or TopNotch or Jack Broz, Chicagostock, DC or Chance or JimmyMayo, WB or SamE to jump all over me and help me get my head back on straight .
In the end it’s important to understand your skill level. Learn something that works for you, but don’t overdo it and don’t try to learn too much at once. Set up your trades in advance. If your timing is off, expand your levels or take a step back. Practice in a demo account. At first, you just need one consistent method that makes money.
The Asian markets closed mostly higher and in Europe 7 of 12 markets are trading modestly higher. This week’s economic calendar includes a total of 25 economic reports, Janet Yellen speaking, 15 T-bill or T-note announcements or auctions, 2 Fed governors speaking and the March jobs report. Today’s economic calendar starts with Chicago PMI, Federal Reserve Chair Janet Yellen speech to community reinvestment conference in Chicago, and the Dallas Fed Mfg Survey.
Our view: I told the PitBull Thursday night there were not that many 5-day declines in the S&P’s history. We had 6 before we got the big rip higher Friday morning. The ESM was up over 19 handles at the high but closed up 9.8 handles. Overall, Mondays have not been a good day for the S&P, and it also happens to be the last trading day of the quarter.
Tuesdays, on the other hand, have been the best day of the week for the S&P and it’s also the first trading day of April and the second quarter.The Stock Trader’s Almanac has the Dow down 15 of the last 25 today with the Russell 2000 up 14 of the last 19 occasions. The first trading day of the second quarter had the Dow up 15 of the last 19.
That said, it’s very possible they sell today and start buying back in the first few days of April. I am not backing away from my concerns about the end of the best 6 months for stocks and the old adage about “selling in May and walking away.” This year is not last year. It’s starting to look like the yearly S&P gains may not come until later in the year. You can take it from here…
As always, keep an eye on the 10 handle rule and please use stops when trading futures and options.
In Asia, 9 of 11 markets closed higher: Shanghai Comp.-0.41%, Hang Seng +0.39%, Nikkei +0.90%
In Europe, 7 of 12 markets are trading higher: DAX +0.01%%, FTSE +0.54%
Morning headline: “S&P Futures Seen Higher Ahead of Yellen Speech””
S&P fair value: 1849.97 (futures 7.53 higher at 1857.5)