After the Labor Day holiday, Congress comes back to work on Sept. 9 and the week of the 11th is the two-day Fed meeting and the September quadruple witching. Enjoy your time off, ladies and gentlemen, because things are going to change fast in the stock market. As we have always said: Nothing stays the same in the new world financial order.
Follow the money
There has been a lot of movement in the S&P futures over the last 4 weeks, but only a few days saw any actual volume. I stopped by the bond pit and asked 4 bond locals what they thought about the bonds and the S&Ps, and 3 out of 4 traders said they thought the S&P will eventually live with higher rates. According to Lipper, mutual fund flows for the week of 8-21 saw equity fund outflows of -$9.4 billion, taxable bond outflows of -$3.9 billion, ETF-equity fund inflows of + $2 billion, and taxable bond fund outflows of -$1.5 billion. We have said several times over the last few weeks that there have been real cash sellers in the stock markets, and the flows clearly show that.
Part of the price action of the S&P is to be weak in the first part of the week and firm up late in the week. Regardless of what the Fed has to say, right now the S&P is short-term oversold and pivoting against the 1650 level. Over the last few days there have been several failed rallies. What that has done is added more short positions. Additionally we see several large S&P option accounts rolling lower. That usually means that the S&P is getting ready to bounce.
The countdown to the Labor Day weekend is on. If you are going to trade next week, remember to get in, get out and don’t fall in love with your positions.
Asian markets closed mixed, Europe is trading modestly higher
Jason Carter at the desk said right after the open yesterday that “everyone” thinks you have to sell rallies and that “today they are going to torch the shorts.” We put that in the trading room very early.
While our call was to sell rallies, we knew right away that was wrong when the ESU opened a few handles lower and made its low on the open. On top of that, you could feel the algos were going the other way, searching for buy stops upside. While the overall volume was low due to the NASDAQ trading halt, there was a high level of buy programs and algorithmic trading going on before the exchange shut down.
If you sold at 1654 first time up you made some money, and if you were lucky enough to be short when the NASDAQ headline hit the tape you made money, but in each case the market rallied back to where it sold off from, then made new late-day highs.
Today is Aug. 23. That leaves 6 trading days and 9 days till the end of the month. The Catholic grade school across the street from my house is already in session and the Chicago public schools start Aug. 26. Our intern went back to college a few weeks ago. Why am I saying that? Because if you think there is a low level of participation this week, just wait till next week.
Our view: Today’s trade starts out with Federal Reserve Vice Chair Janet Yellen leading a panel discussion at the Kansas City Fed symposium in Jackson Hole, Wyo. The new home sales report comes out at 9:00 CT. We suspect the futures and options markets will be a little busy for the first and last hour. Because it’s been such a seesaw, we left the desk (our “top step” position — that’s why we’re “Mr. Top Step”) and went to the floor to try and figure out the price action. Our best guess is the S&P still has a little further to go on the upside. 1671-1673 will be your first real resistance area.
As always, keep an eye on the 10-handle rule and please use stops when trading futures.
Lastly, please find an hour to look at the Pit Bull speaking at Amherst College. He has been my friend for a long time, but I still love hearing him talk. “A Market Wizard Speaks: Marty Schwartz speaks at Amherst College, Spring 2013.” At Marty’s request, we are offering the full video free of charge to you and the world. Few people trade as well as Marty does. Even fewer are willing to share what they’ve learned.
- In Asia, 7 of 11 markets quoted closed higher (Shanghai Comp. -0.47%, Hang Seng -0.15%, Nikkei +2.21%).
- In Europe,9 out of 12 markets are trading higher (DAX +0.08%, FTSE +0.42%).
- Morning headline: S&P Futures Seen Lower, Jackson Hole on Tap
- Total volume: 1.55mil ESU and 6.6k SPU traded
- Economic calendar: Janet Yellen speaks and new home sales
- MrTopStep Closing Print Video