In the new world trading order, one of MrTopStep’s trading rules stands out above the others: “No stops go untouched in the S&P 500 futures.” Yesterday, after 3 days of multiple attempts to take out S&P futures 2100.00 and several highs at the 2098 to 2099 level, the S&P finally blew through and took out all the buy stops we have been talking about all week.
On Friday’s close the Dow Jones futures (YMH15:CBT) closed up 145 points or up nearly 1%. The S&P futures (ESH15:CME) closed up 11.8 points or just over +0.60%. Both indexes hit new all-time intraday highs and closes. The NASDAQ futures (NQH15:CME) also closed up 0.60% or 24.75 points. Over the last 5 to 7 trading days the S&P 500 futures have seen their daily volume drop to 1.1 to 1.2 million contracts today. Clearly the higher the futures go the less volume there is. After an early morning drop the S&P started to go quiet, but when the midday headlines hit saying that the eurozone had approved a four-month extension for the Greeks, falling short of the six months Greece had requested earlier in the week, the S&P took off to the upside. As the news spread, the euro climbed against the dollar. Earlier in the day the euro traded down to 1.190 and traded as high as 1.1377.
Despite the continued negative headlines there seem to be an overall firmer tone to the S&P last week. Many traders we spoke to were not surprised that Greece had finally struck a deal. The initial push higher made it look like the futures were going to run buy stops through the 2100 level and higher, but stopped short and traded in a narrow trading range at the 2092 to 2094 level. We felt strongly that Friday was the day that the S&P would run the buy stops above 2100, and as the cash buys started filtering in late in the day, the S&P futures reacted in kind and another one of MrTopStep’s rules kicked in: “The Late Friday Rip.” The initial thrust through the big figure pushed the ESH15 up to the 2105.50 level, back down a little, then back up to 2007.50 and then 2108.50 late in the day. In the end the dark cloud concerning the uncertainty in Greece has been removed for now.
As the fourth-quarter earnings come to a close, 443 companies in the S&P 500 have reported results. According to FactSet, the blended earnings growth rate for the fourth quarter 2014 is more than the estimate of 1.7% at the end of the fourth quarter. Additionally, global stock markets have been making multi-year highs, backed by the easing actions from the central bank. The DAX made its 13th record high in 2015. Crude oil futures closed down 1.6% at 50.34 a barrel and gold futures closed down 0.2% to 1,204.40.
We have a big week ahead and it doesn’t look like the rally is over. As we continue to learn, it’s all about following the money, and right now that money is going into the US stock market. There was a story out last week that it was time to sell the US and start buying Europe, but we don’t agree with that idea at all. In fact, we think the S&P is on its way to 2250 before the end of the year. As always, don’t forget to buy the dips, sell the rips.
MrTopStep Unplugged Feb. 28 webinar featuring the PitBull, Marty Schwartz.
In Asia 7 of 9 markets closed higher and in Europe this morning 8 of 12 markets are trading higher. This week has a busy economic schedule: 22 economic reports, 11 T-bill or T-bond auctions or announcements, Federal Reserve Chair Janet Yellen speaks Tuesday and Wednesday in the semi-annual monetary policy testimony before the Senate Banking Committee in Washington, and a bunch of Fed speak on Friday. Today’s economic calendar includes the Chicago Fed National Activity Index, PMI Services Flash, existing home sales, Dallas Fed mfg survey and a 3- and 6-month T-bill auction.
The S&P has to go down to go up
Our view: The S&P is overextended, but it doesn’t seem to matter. The mutual funds have pretty much been nonstop buyers. As for the overall price action, it’s pretty much the same thing every day: some type of selloff or pullback and then rally. My saying about the S&P having to go down to go back up has been right on. As I have said, one of the most basic ways to look at the S&P is through its net changes, and no matter how you look at it the bull has been running pretty hard. Of the 14 trading days in February: 9 up / 5 down of the last 14 sessions, or up 6 of the last 8. That is amazing. The 6 winning days add up to 65.3 handes and the 2 down days equal -0.60 handles. We are back in this thing where the S&P can rally for several days but the down days don’t pull back much.
- Feb 10 +19.8
- Feb 11 +3.5
- Feb 12 +18.4
- Feb 13 +9.4
- Feb 17 +2.4
- Feb 18 -0.50
- Feb 19 -0.10
- Feb 20 +11.8
14 trading days: 9 up / 5 down or up 6 of the last 8
Our view is pretty much like it’s been all month: sell the early rallies and buy weakness.
“Buy Stops and the S&P 2100”
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 9 markets quoted closed higher: Shanghai Comp CLOSED, Hang Seng +0.02% Nikkei -0.27%
- In Europe 8 of 12 markets are trading higher: DAX +0.36%, FTSE -0.30%, MICEX -0.29%, Athens GD.AT -0.57%
- Fair value: S&P -2.87, Nasdaq -1.60, Dow -27.11
- Total volume: 1.63mil ESH and 5.9k SPH traded
- Economic schedule: PMI Manufacturing Index Flash and Atlanta Fed Business Inflation Expectations
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