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No Baxter today. New model later this week.
Chart of the Day
S&P 500 earnings estimates make biggest jump in decades
Earnings estimates for the S&P 500 Index have surged because of a “huge explosion” in profit at economically sensitive companies, according to Michael Purves, chief executive officer at Tallbacken Capital Advisors LLC. He cited the year-to-year change in forward earnings, based on profit projections for the next 12 months, in a report Monday. S&P 500 estimate increases surpassed 40% in May for the first time since at least 1990 and then stayed around that level, according to weekly data compiled by Bloomberg. “The earnings growth story into and through 2022 will continue to be robust,” Purves wrote.
S&P 500 1.2% From Its All-Time High
Just a few days ago, the world was coming to an end. At least, if you’re on Twitter that is. The stock market was crashing, but just two days later the S&P 500 is only 1.2% away from its all-time contact high. Why? Because the stock market is the best bet for investors!
I am not going to do a big overview of yesterday’s S&P 500 futures trade because we live in a world of “wash, rinse, repeat.” The pattern is so well-defined it’s hard to believe that the short-sellers even try to sell it.
How many times over the last several years has the stock market sold off over several days and then come flying back up? It’s happened so many times I can’t count that high. It’s like I’ve always said, they can knock the S&P down for a few days in a row, but it only takes one day to come back to life.
Yesterday the Wall Street Journal pointed out that strong corporate earnings were the reason for the recent rally. I disagree. Yes, earnings play their part but I think it’s all about the trillions of dollars in liquidity provided by the Federal Reserve and the government’s never-ending stimulus programs. While I am a bull market guy, I think we all know that you can’t print money forever and when that stops…so will the music.
Yesterday’s breadth was solid, with upside volume at 83% on the NYSE. That follows Tuesday’s more robust reading of 89.6%. Back-to-back 80%-plus days is pretty powerful stuff and could suggest we’re started a new push to all-time highs. When the volume is so slanted like this, it’s impossible to fight and we don’t suggest trying.
Overnight the ES traded up to 4361.00, just 23.50 points off from its all-time contract high and only 39 points away from ES 4400.00.
I understand that there are two sides to the markets, but as long as the government is providing trillions in liquidity, the buy-side will remain the path of least resistance and it doesn’t look like that’s going to change any time soon. I still see ES 4600.00 as my 2021 upside objective, but I can’t rule out even higher prices.
The bottom line is this: The trend is your friend and it’s best not to forget it!
As I said yesterday, Wednesdays and Thursdays tend to be countertrend or pullback days. It didn’t happen yesterday, but with the ES up 135 points since Monday’s low, I think it’s quite possible we see some type of pullback before tomorrow’s weekly options expiration.
Our Lean: Sell the early rallies and buy the pullbacks, keeping in mind how much the futures have rallied in the last two days.
If you were in the chat room on Monday, you’ll know everyone was hammering on about the 50-day moving average in the ES. That mark held within a few points and helped ignite this 130-plus handle rally.
Good stuff — and it’s a solid reminder of, “the trend is your friend.”
From here though, let’s see if we get a rest day. An inside day can already be ruled out, with the ES trading above Wednesday’s high. However, we could get an inside day in the SPX and it would be very healthy if we did. In the ES, a 20-handle dip down to the 10-day moving average could set us up nicely for an afternoon or Friday rally.
But let’s not get too specific. Let’s trade what they give us and look for 4383.75 on the upside. That’s been resistance so far. A push above that could get us to 4400.
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.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS