Market Review
It didn’t matter that it was a jobs day or that we’re in the midst of earnings. The ES failed to really burst higher or roll over despite the better-than-expected labor report for July. In fact, it was another slow day on a list of many lately.
At 8:45 a.m. the ES traded down to 4417.25 on Globex and opened Friday’s regular session at 4425.25 and traded up to the high of the day at 4433.25.
After the push up, the ES ‘double bottomed’ at the 4422 area and then made a sequence of small pops and drops trading up to a lower high at 4432.25 at 1:15, but the rally didn’t last long and the ES dropped 10 points down to 4432.25 just after 3:00.
The ES then traded back up to another lower high at 3:36 after the MIM started showing $499 million to sell. The ES traded 4429.00 as the final 3:50 cash imbalance showed $1.466 billion to sell. On the 4:00 cash close, the ES traded 4428.75 and settled at 4430.75 on the 5:00 futures close.
In the end, it was a very long day that was filled with narrow back and fill. In terms of the day’s overall tone, the S&P was firm and is now up 18% YTD and made its 44th record close. In terms of the ES’s overall trade, volume was extremely low. Total volume was 772,000, the lowest full day volume in over 10 years.
There is no doubt that earnings have given the S&P a boost. According to FactSet, corporate earnings in the S&P 500 grew 90% in the second quarter from a year earlier, up from an estimate of 53% growth the day before the quarter’s April earnings kicked into gear.
Economic Calendar
Closing Prices
In the TradeChat Room
Market On Close : $1.5B to Buy. Still we squeeze up into the close.
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Baxter:
Baxter is back!
Friday had a small trading range of just 11.75 points. Baxter had predicted a 38-point range. Today Baxter has an even larger range. Bax is struggling with range as it is detecting a topping process here and the uncertainty is growing as it predicts higher highs and lower lows.
Chart of the Day
Why stop at 5,000? S&P 500 is seen reaching 6,000 in 2025
Wall Street strategists are making increasingly optimistic predictions for the S&P 500 Index, which closed Thursday at 4,429.10. Goldman Sachs Group Inc.’s David Kostin is now calling for 4,900 at the end of next year. Yardeni Research Inc.’s Edward Yardeni is targeting 5,000. Leuthold Group Inc.’s Jim Paulsen is looking out further, to 2025, and seeing a bigger round number: 6,000. Paulsen raised the possibility in a report Thursday that assumed the U.S. economy will grow for the next four years. His projection values the S&P 500 at 20 times earnings per share of $300.ooking tired.”
Our View
And The Band Plays On
The S&P keeps going up but money market funds, banks and investors have moved over $1 trillion in spare cash overnight at the Federal Reserve in exchange for securities, the most since the Fed opened its so-called reverse repurchase agreements in 2013. There are all sorts of negatives facing the S&P and it’s not just the overnight repos.
Right now stocks are nearing their most expensive valuations in history, the price-to-sales (P/S) ratio of the benchmark S&P has negatively correlated with subsequent 10- and 12-year average annual returns about 90% of the time since 1928. Today’s ratio is 3.17, meaning companies are trading at more than 3x than their annual sales. Additionally, the price to sales ratio of the S&P is now 35% higher than it was at the highs of the dot com bubble. That said, today’s tech companies are much more profitable than those of 1999.
Further, there has never been a time that the US government and Federal Reserve have spent so much money on stimulus and quantitative easing. I do not think it’s a question of if the markets sell off, it’s when. I know when it does come it’s going to be painful, but I also think it will end up being a good thing. We all know the stock market is overvalued but try picking a top — it ain’t easy.
Our lean: Friday’s volume for a full session was the lowest in 10 years. If you take out the 180,000 from Globex, only 592,000 contracts traded in 7.5 hours. There is no doubt the higher the S&P goes, the more distorted the valuations become.
Our lean: This has gotten so silly it’s not funny, but as long as the volume remains so low I think buying the pullbacks works best. Sure you can sell the rallies and buy the pullbacks but sometimes that throws you off the trend, which is still higher.
As we all know, there’s no crystal ball when it comes to trading stocks, options, or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk-free for 30 days.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
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