The S&P 500 futures (ESZ15:CME) opened the globex session Sunday night and saw early weakness as the futures traded lower down to 2064.75, 10 handles off of Friday’s close and 25 handles from Friday’s overnight high. When it seemed that the equity indexes might be poised for some weakness with October’s month-end profit-taking, in came Mutual Fund Monday. November begins the season referred to as “the best six months of the year” for the stock market, as a very historically bullish sentiment occurs in the month. Yesterday was the first trading day of the month, which also happened to fall on Monday; and judging by the constant bid higher, it seems that the mutual funds, as well as other institutional managers, have moved back into Mutual Fund Monday. Historically these funds like to load up and buy early in the week; that’s what we saw yesterday, and what could be an indication of the year-end trend.
Now the futures have moved within 50 handles from all-time highs, and seem poised to reach and make new highs at some point this month, probably sooner than later. The markets are in full rally mode, and looking at a chart from last year, it appears that the months of October & November had few short opportunities in a market that was being driven higher then. It looks like history is repeating itself. Traders may end up seeing every 10 handle pullback, as with Sunday’s globex, as a gift to go long into year’s end.
There is what has seemed to be an inflow of pessimistic economic data over the last several weeks, which included consecutive Non-Farm Payroll misses, retail sales misses, and then manufacturing data misses yesterday giving the lowest reading since 2009; but the market kept rallying. Even after the Atlanta Federal Reserve lowered its forecast for U.S. GDP growth yesterday, the rally continued. This has been indicative of a response to the cautious earnings season, China uncertainty, and the looming interest-rate hike.
I have been mentioning how CNBC commentators, who almost suggested the end of the world during the August correction, have now come on board in the bull camp. Is it a little overdone? Sure. Will it stop? It doesn’t seem like it. Some ask how the markets can shrug off what seems to be consistent economic disappointment. All one has to do is look back to 2007 when the markets, while on the verge of the credit crisis, were hitting new all-time highs. Is this 2007? No; every year is different. What next year holds is anybody’s guess; interest rates will likely be higher at some point, AND there will be a major election in the United States, as well as the continued unsettling of certain global markets. I don’t know what next year holds, but for now it seems the message to be clear, BUY THE DIP.
The equity markets surprised me some after rallying on last week’s Fed announcement. Here is the reason why, I think. I have been saying what everyone knows – the markets do not thrive on uncertainty. When disappointing data came out, uncertainty crept into the market over a rate hike; in fact, some nearly demanded stimulus. After listening to all the Fed speak over the last month, and then the statement last week, their language has seemed to suggest an overall more hawkish view, while reiterating that they are looking at the larger picture, not just a month or two of data. MrTopStep has maintained that there will be no rate hike this year, and we still maintain this view, however it is clear that the Fed has started a message that cannot be retracted; rates are going to rise at some point, and some point soon.
In Asia 9 out of 11 markets closed higher (Shanghai Comp. -.25%), and in Europe 7 out of 12 markets are trading lower (DAX -.26%). Today’s economic calendar includes Motor Vehicle Sales, Gallup US, ECI, Redbook, Factory Orders, 4-Week Bill Auction, and earnings from 1-800-Flowers.Com Inc (FLWS), Archer Daniels Midland Co (ADM), CBS Corp (CBS), Coca-Cola Bottling Co Consolidtd (COKE), Devon Energy Corp (DVN), Dennys Corp (DENN), Emerson Electric Co (EMR), Gain Capital Holdings Inc (GCAP), Herbalife LTD (HLF), Hyatt Hotels Corp (H), McGraw Hill Financial Inc (MHFI), Office Depot Inc (ODP), Papa John’s International, Inc. (PZZA), Red Robin Gourmet Burgers (RRGB), Scotts Miracle-Gro Co (SMG), Silver Wheaton Corp (SLW), Sprint Corp (S), Taser International Inc (TASR), Tesla Motors Inc (TSLA), Zillow Group Inc (ZG), and Zynga Inc (ZNGA).
Our View: We did get a small pullback, and then it rallied, trading back to 2100. Yesterday I began referencing that 2100 pivot, which was so relevant for 6 months out of this year as it seemed to be a magnet, and yesterday’s high was 2100 to the tick. I keep saying it’s hard to buy here with the markets so high, but you know what, they don’t care! It seems like every little pullback is a gift to reload and ride higher. It’s been no market for shorting, other than quick scalps. This is not the time of year to step in front of the moving bus, even if it is too full. Pick spots carefully, use stops, and let winners run to the upside. There is no point putting unnecessary capital at risk trying to be a hero.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed higher : Shanghai Comp. -.25%, Hang Seng +.89%, Nikkei -2.10%
- In Europe 7 out of 12 markets are trading lower : CAC +0.03%, DAX -.26%, FTSE -0.09% at 7:00am CT
- Fair Value: S&P -6.47 , NASDAQ -9.59 , Dow -85.01
- Total Volume: 1.28mil ESZ and 4.7k SPZ
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