The markets traded in a narrow 6-point range, with the S&P 500 index (^GSPCP:SNP) making its fifth straight day of new record highs. The S&P futures (ESZ14:CME) hit their high right around midnight ET in a slight divergence from the index. As we pointed out, a lot of traders are treating Wednesday as the start of this short week and we expect a strong return of volume and continued action to the upside.
The S&P 500 rose 0.1 percent to 2,039.68 at 4 p.m. in New York for a fifth straight gain, the longest rally since June. The Dow Jones Industrial Average (^DJI:DJI) made its sixth straight gain, climbing 1.2 points, or less than 0.1 percent, to a record 17,614.90. U.S. Treasury markets were closed for the Veterans Day holiday, adding to the subdued tone of the trading.
While we still believe a small pullback would fit the normal patterns, this three-week rally has been anything but normal. The market has taken advantage of low volumes to rally to successive new highs for the previous three days. It has been a classic “thin to win” scenario. As funds continue to buy stocks before the end of 2014, we expect increased volume, but no letup in the rally for now.
That said, this morning the S&P futures have broken below support in Globex electronic trading, and may be heading for the Fibonacci 38% retracement level at 2022.50. Adding to the bullishness is the expectation of continued lower crude oil prices. With the lower energy overhead costs, companies may see higher profit margins and economies will have an easier time stimulating growth.
In Asia markets closed mixed, with the Hang Seng, Shanghai Composite, and Nikkei all slightly higher. In Europe 10 of 12 markets are trading lower. Today’s economic schedule includes 4- and 52-week Bill announcements, 10-year Note auction, Bank Reserve Settlement, Philadelphia Fed President Charles Plosser speaking at the UBS European Conference in London, MBA Purchase Applications, Atlanta Fed Business Inflation Expectations, Wholesale Trade, Minneapolis Fed President Narayana Kocherlakota speaking in Eau Claire, Wisconsin on clarifying monetary policy objectives, and earnings from Macy’s (NYSE: M), J. C. Penney Company (NYSE: JCP), Cisco Systems (NASDAQ: CSCO), and NetEase (NASDAQ: NTES).
Our view
With the market continuing the decline that began with yesterday’s low-volume trade, we look for some more downside before the market finds support and resumes its rally. Five straight days of new all-time highs is a lot to digest, so some profit-taking is inevitable. In short, don’t try to catch a falling knife and don’t try to pick the bottom. The patterns of the last few weeks have seen choppy, sideways price action between sharp rallies and drops. Expect similar choppiness today. We lean to selling the early rallies, allowing the market to find support, and buying weakness. We’re also mentally prepared to pivot quickly and not hold positions for too long in this choppy environment.
November expiration study link: http://mrtopstep.com/?p=53835
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 of 12 markets quoted closed higher: Shanghai Comp-+1.00%, Hang Seng +0.55%, Nikkei +0.43%
- In Europe 10 of 12 markets are trading lower: DAX -1.28%, FTSE -0.36%, MICEX +0.09%
- Fair Value: S&P -3.31, Nasdaq -3.13, Dow -44.15
- Total Volume: 0.78Mil ESZ and 5K SPZ traded
- Economic schedule: 4- and 52-week Bill announcements, 10-year Note auction, Bank Reserve Settlement, Charles Plosser Speaks, MBA Purchase Applications, Atlanta Fed Business Inflation Expectations, Wholesale Trade, Narayana Kocherlakota Speaks and earnings from Macy’s (NYSE: M), J. C. Penney Company (NYSE: JCP), Cisco Systems (NASDAQ: CSCO), and NetEase (NASDAQ: NTES).
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