Traders are switching their bets believing that stocks will rally into the end of the year as the best 6 months for stocks approaches. There are five trading days left in October, with the S&P 500 futures up over 11% from its August 24 low, could there be more on the upside this week, or will profit taking commence?
On August 24, 2015 the Chicago Board of Options (CBOE) fear gauge, the VIX, rallied up to a high of 53.29. Fear was rampant and the global stock markets were plunging.Then came October, and after a 4 week rally in the S&P, a batch of good earnings news, and the Chinese cutting their key interest rates, the S&P traded up to 2075.00 area during Friday’s trade. I have tried to explain that with the Federal Reserve unable to raise interest rates this year, that it would bring the buyers back in, and the mutual funds have been pouring money back into stocks all month, and it’s not over yet.
Halloween Effect
According to Mark Hulbret, the Halloween Indicator which marks the beginning of the best 6 months for stocks already carries good odds of success for the Dow Jones. Hulbret adds, when the stock market is riding a wave of momentum into Halloween, like it is this year, having rallied hard in October, including the strength from last week — then the odds become even better. Since the late 1800’s the the DJIA has produced a Halloween – May average gain of 4% when the prior two months (Sept/Oct) net a loss, however when these two months net a gain, as they have this year, the Halloween indicator boosts up to 6.8%.
As the end of the ‘worst’ 6 months for stocks comes to a close and the best 6 months for stocks begin, it does so with the S&P futures up 240 handles (points) from its Monday August 24 “Flash Crash’ low. After four straight weeks of higher closes, many market pundits will point out that China’s surprise interest-rate cut from the People’s Bank of China was what helped push the S&P 500 higher on Friday, but the reality of this is that the markets have been moving higher for four weeks prior to the rate cut. Last week, after several big-name companies reported weaker than expected earnings, a few big tech names reported higher-than-expected. Amazon, Microsoft, and Alphabet all traded higher after reporting their earnings.
The ‘Correction’ Is Officially Over
At the end of the week, the S&P 500 futures (ESZ15:CME) traded up to a new high at 2074.50 and settled at 2066.00, up 12.90 points, or up 0.49%. The Dow Jones futures (YMZ15:CBT) made a new high 17597.00 and settled at 17546.00, up 138 points, or up +0.63%. The big gainer was the e-mini Nasdaq futures (NQZ15:CME) which made a new high at 4637.50 and settled at 4611.50, up a whopping 58.75 points, up +1.20% on the day. Over the last four weeks, the Dow futures have gained over +8%, and the S&P has gained over 7.5%. Both futures have gained over 10% since making their August 24 low. This week 150 companies in the S&P report earnings.
The main focus of the US stock markets this week will be the big uptick in companies reporting earnings, and particular attention will be paid to this week’s two day week Federal Reserve meeting and policy statement from its October meeting on Wednesday. Let’s face it traders, unless there is some unknown that we do not know about, the S&P 500 futures are on their way to 2100.00 and beyond. Over a month ago, most or all the well known ‘market timers’ were calling for a global stock market crash. Now that the S&P has recovered over 10% of it loss, many of those same market timers are calling the S&P at 2200.00 to 2300.00. They were wrong at the low, and it’s my guess they will at least be temporally off on their bullish calls. The S&P is overdue for a pull back, and as the markets move into the final 5 trading days of October, after being up so much, it is possible the mutual funds start taking some profits, and the best way to follow that is the MrTopStep Imbalance Meter (MiM http://closingimbalance.com/ ).
In Asia 7 out of 11 markets closed higher and in Europe 7 out of 12 markets are trading modestly higher.This week’s economic calendar includes 18 separate economic releases, 9 T-Bill or T -Bond Auctions or Announcements, a Two Day FOMC Meeting, US GDP, and a boat load of earnings.
5 Trading Days Left in October
Our View: It’s been an unbelievable push back, almost like all has been forgiven. There were some huge losses, and now the ES is almost back to to where the sell off started. Say what you like, but there was a Flash Crash on August 24, and at the time the world was coming to an end, but that sell off is long gone and the year end push back up is in full swing. The PitBull asked me if I thought the ES could pull back next week and I told him I was tired of trying to pick a high. Like everyone, we all think the ES is going to pull back, but it doesn’t. Our view is we want to get a look at the price action. I know this sounds funny, you can buy the dips in the ES, but it may be time to buy some cheap lotto ES puts. The October month end is this week.
MrTopStep WEBINAR
“MISCONCEPTIONS AND REALITIES OF HIGH FREQUENCY TRADING”
Please join MrTopStep’s Danny Riley and Rob from Discovery Trading Group for this Saturdays, October 31, 2015, 10:00am CST webinar
‘The S&P 500, and the Bears Turn Bullish’
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 11 markets closed higher : Shanghai Comp. +0.50%, Hang Seng -0.15%, Nikkei +0.65%
- In Europe 7 out of 12 markets are trading modestly higher : CAC -0.60%, DAX +0.10%, FTSE -0.13% at 7:00am CT
- Fair Value: S&P -6.85, NASDAQ -9.94, Dow -98.08
- Total Volume: 2mil ESZ and 10k SPZ
[s_static_display]
No responses yet