New All-Time Highs in the S&P 500 Futures and Turnaround Tuesday

After 10 days of MOC buy imbalances, yesterday saw $1.7 billion to sell on the close. It was all part of the big investment firms and mutual funds taking some profits, but by the feel of it but most traders we talk to think the S&P futures (ESH15:CME) has a shot at going to 2150 soon.

The S&P 500 eked out a new record high yesterday for the second day in a row. Overall the day’s trade was quiet due to the weather-related problems in the East and some traders just taking time away from the screens. Despite the record push there has been an absence of volume. Yesterday the S&P 500 futures gained 2.50 points or +0.2%. The Dow Jones futures closed up 19 points or +0.2% to 18001.

At the beginning of the day the S&P futures traded in negative territory before it started to short cover, taking out by stops above 2092 up to the new contract high at 2098.75, but the mutual funds came in selling on the cash close. The ESH made a late-day high at 2098.75 around 2:15 CT and sold off down to 2093 as the MiM (MrTopStep Imbalance Meter) showed over $1bil in stock for sale on the cash close, but that was not good enough for the algos as the futures shot up above 2097.00 just after 3:00. At the end of the day the S&P closed modestly higher but within striking distance of S&P 2100.00 or higher.

What’s With Crude Oil?

It seems like crude oil and the S&P are doing their own thing. That doesn’t mean that crude oil doesn’t remain a key component of the S&P 500, what it means is the two are no longer trading tick for tick. Yesterday while the S&P 500 futures was meandering, crude oil started lower and took out the stops below $51. It was a sharp reversal. But like the S&P, once selling dried up, crude started ripping higher. Earlier in the morning crude oil traded as high as 53.46 before the S&P 500 opened but by 9:20 CT crude oil had collapsed all the way down to 50.85. Just after 1:00 PM it was trading $54.04.

What was with all the big movement? I assure you that CNBC and Fox will have their reasons for the big drop and spike, but we know what caused the spike in volatility… Yesterday was crude oil options expiration. While this may sound funny, we recommend that all traders write down the days when crude options and crude futures expire as there is always a high level of algorithmic trading and expanded ranges. These big moves on the day crude oil options expire are nothing new. In fact, crude oil has seen some very large moves over the last couple of years the day the options expire.

S&P Milestones Meant to be Broken

Over the years we have seen the markets approach many milestones, and yesterday was S&P 2100. Sometimes the markets will blow through a milestone price and sometimes they fall short, and that’s what we saw yesterday. In most cases milestone are made to be broken, and I am sure that could happen today or tomorrow. For years many people thought it was a great idea to sell milestones or “big figures,” but that has not worked all that well over the last 6 years. As the subhead says… milestones are meant to be broken.

Will the S&P futures take out 2100? And how long will it take before the S&P starts to pull back are just a few of the questions we should get answers to over the next few days.

In Asia 9 out of 11 markets closed higher and in Europe this morning 12 of 12 markets are trading modestly higher. Today’s economic calendar starts out with the MBA purchase applications, housing starts, PPI-FD, Redbook, industrial production, FOMC minutes and earnings from Priceline (PCLN), Wal-Mart (WMT) and Marathon Oil (MRO).

S&P Futures Up 5 in a Row

Our view: What a showing by the S&P 500, but better yet, what a showing by the algos that took advantage of the thin-to-win environment. On Friday only 1.1 million e-minis traded and yesterday at 2:30 Eastern there was only 856,000 traded, including Globex. Maybe part of this has to do with the weather, but the other part is, the S&P is too high too buy and too firm to sell. The rest of the week’s stats are on the weak side, but that doesn’t mean the ESH won’t start taking out the buy stops above 2100.00.

Our view is the ESH15 has closed higher 5 days in a row, therefore we lean to selling the early rallies and buying weakness. Somewhere in here the bulls will get caught with their pants down.

The S&P has been up 8 out of the first 11 days of February or 5 in a row.

Here are the option expiration stats…

“Turn Around Tuesday and S&P 2100”

As always, please use protective buy and sell stops when trading futures and options.

• In Asia 9 of 11 markets closed higher: Shanghai Comp. +0.76%, Hang Seng +0.19%, Nikkei +1.18%
• Earlier in Europe 11 of 12 markets were trading higher: DAX +0.45%, FTSE -0.01%, MICEX +1.51%, Athens GD.AT +1.37%
• Fair value: S&P -3.22, Nasdaq -1.01, Dow -31.11
• Total volume: 1.23mil ESH and 3.4k SPH traded
• Economic schedule: MBA purchase applications, housing starts, PPI-FD, Redbook, industrial production, FOMC minutes and earnings from Priceline (PCLN), Wal-Mart (WMT) and Marathon Oil (MRO).

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