It was a bad day for the stock market. The Dow Jones Industrial Average (^DJI:DJI) closed down -0.60%, the S&P 500 cash (^GSPC:SNP) closed down -0.80%, the Nasdaq Composite closed down 1.1% and the Russell 2000 fell 1.5%.
The S&P 500 futures (ESZ14:CME) picked up exactly where they left off on Friday’s close, going down. Like much of the last three weeks, the day’s trade started out with a sell program. As we have stated many times, it doesn’t matter if the S&P is higher or lower on the 8:30 open—some type of sell program shows up.
The ESZ14 was down 9 handles in Globex at 6:00 am CT. Overnight, Chinese Finance Minister Lou Jiwei said “major changes to the country’s economic stimulus efforts aren’t likely.” Despite Chinese growth falling to the lowest level since the 2008 credit crisis, the statement put aside the idea of more aggressive policies to stimulate economic growth. The news sent weakness through the global markets and helped push the US 10-year Treasury note yield down to 2.567%.
Rules to Remember
One of the rules we have followed for years is that if a quadruple witching goes out weak, the Monday after tends to be weak. With the S&P cash study showing the Mondays after the September quadruple witching up 9 / down 21 of the last 30, Monday’s drop came as no surprise, especially after the news from China. With the the Alibaba IPO, the Fed meeting, and most major U.S. news out of the way, the S&P felt like the air had come out of the tire.
The other rule that we talked about yesterday and one that the PitBull has been talking about for the last 25 years is the QCHA. Yesterday when the ESZ14 was falling and I looking for support in the S&P, all the PitBull had to say was the QCHA was down -70 and I knew that meant the index was going to struggle further.
The QCHA is the unweighted average percentage gain of all traded stocks on the NYSE. Unlike other indices and indicators which give more importance to large stocks, the QCHA measures whether all stocks, large and small, are gaining in value or if a stock rally or drop is being driven by a few big companies. The QCHA of -70 meant that both big and small stocks were, on average, losing share price. In other words, the S&P was unlikely to be held up by a few big stocks (like Alibaba) nor would the collective gains in smaller stocks offset a few big losers. Everyone was trending down, as you can see from the stairstep descent in the chart above.
The Asian markets closed mostly lower and in Europe 11 of 12 markets are trading lower.Today’s economic calendar starts out with Federal Reserve Gov. Jerome Powell, Kansas City Fed President Esther George and St. Louis Fed President James Bullard speaking on community banking at the St. Louis Fed conference, Redbook, FHFA House Price Index, PMI Manufacturing Index Flash, Richmond Fed Manufacturing Index, 2-year note auction and earnings from Carnival Corp. (NYSE: CCL), CarMax Inc. (NYSE: KMX), Bed Bath & Beyond Inc. (NASDAQ: BBBY), and Steelcase Inc. (NYSE: SCS).
The S&P futures have closed lower 9 out of the last 15 trading days in September and you know what? I think this type of rocky, rally-and-sell-off trade may continue for a bit. Aside from some important economic releases there is a ton of Fed speak this morning. Our view is for more of the same: sell the rallies.
Week After September Quad Witch Down
As always, please use protective buy and sell stops when trading futures and options.
In Asia of 7 out of 11 markets closed lower: Shanghai Comp. +0.87%, Hang Seng -0.49%, Nikkei -0.71%
In Europe 11 of 12 markets are trading lower: DAX -0.89%, FTSE -1.21%, MICEX +0.47%
Fair value: S&P -7.83 , Nasdaq -9.16 , Dow -86.28
Total volume: 1.57mil ESZ and 2.9k SPZ traded
Economic schedule: Federal Reserve Gov. Jerome Powell, Kansas City Fed President Esther George, St. Louis Federal Reserve Bank President James Bullard speaking on community banking at the St. Louis Fed conference, Redbook, FHFA House Price Index, PMI Manufacturing Index Flash, Richmond Fed Manufacturing Index, 2 Yr-Note Auction. Earnings from Carnival Corp. (NYSE: CCL), CarMax Inc. (NYSE: KMX), Bed Bath & Beyond Inc. (NASDAQ: BBBY), and Steelcase Inc. (NYSE: SCS).