The S&P futures (ESZ13:CME) sold off modestly during the first 3 trading days of the week, down 13.8 handles, and rallied 14 handles during yesterday’s trade. This goes back to one of the MrTopStep trading rules, that it takes days and weeks to knock the S&P down and only one to bring it back.
The Asian markets closed mixed and Europe is trading modestly higher. Today’s economic and earnings calendar starts out with, you guessed it, more Fed speak. At 8:40 AM ET Kansas City Federal Reserve Bank President Esther George speaks on bank supervision at a Bank of France conference in Paris.
Along with that we have JOLTS, e-commerce retail sales, Kansas City Fed manufacturing index and at 12:15 PM ET Federal Reserve Gov. Daniel Tarullo’s speech on shadow banking to the Economic Policy Institute in Washington.
Going up from the get-go
How did we know the ESZ13 was going back up? The first part is the ES never really went down. Sure, a few spikes lower, but all that did was get the short sellers excited and shake out a few downside sell stops. Yesterday the ESZ13 was going up from the get-go.
Yesterday when the Philly Fed number disappointed and the 10-year note yields moved down and the S&P took off to the upside, the 9:00 buy program showed us exactly what was going on. When we see buy programs on the half hour it usually means that mutual funds have stock to buy. The buying is executed electronically, buying baskets of stock on the half hour. When the big buy program hit at 9:00 and another buy program at 9:30 and 10:00 we knew there was a larger agenda and we pointed it out right away.
After rallying, the ESZ stalled and eventually sold off a few handles and then immediately bounced into new highs. The Pit Bull says when it goes slow and the ESZ13 trades in a narrow range or what we call chop, it is actually the buyers accumulating futures. It’s really hard to fight a tape when it’s like that.
Fun & games
Right now the S&P is still going up, but we do think that it may be nearing a threshold at the 1800 to 1850 level. Most traders we talk to think the S&P will correct in the first quarter and that a taper could come either at the end of December or going into the first Fed meeting in January.
One of my favorite people to follow, Jeremy Grantham from GMO, who has predicted many bubbles, says prudent investors should already be reducing their equity bets and their risk level in general. “This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that’s life. And with a Fed [Federal Reserve] like ours it’s probably what we deserve,” he said. Source: Barron’s Jeremy Grantham’s Bullish Two-Year Outlook
Our view: Buy the dips and watch for the rip
Some Fed speak, a few numbers and it will be back to business as usual. We could throw in a few more lines but it’s been a long week. Our view is buy the dips and wait for the late Friday RIP. Have a good weekend and we will see you next week.
As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.
- In Asia, 6 out of 11 markets closed higher: Shanghai Comp. -0.43%, Hang Seng +0.49%, Nikkei +0.10%.
- In Europe, 10 of 12 markets are trading higher: DAX +0.10%, FTSE -0.10%.
- Morning headline: “U.S. Stocks Rebound From Three Days of Losses”
- Total volume: 1.38 mil ESZ and 6.1k SPZ traded
- Economic calendar: Kansas City Fed President Esther George speech on bank supervision at Bank of France conference in Paris, JOLTS, e-commerce retail sales, Kansas City Fed manufacturing index, Federal Reserve Gov. Daniel Tarullo speech on shadow banking to Economic Policy Institute in Washington
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