In Asia 5 of 11 markets closed up. In Europe half of 12 markets are trading up, half are down. It is a plainly mixed morning. In the midst of that, the S&P is leading the Dow and NASDAQ downwards and showing it is still the king of the index markets.
Over many years of following the index we have seen all sorts of rotations. Some rotations are global while others are just the buying and selling that goes on in the Dow, S&P, and NASDAQ futures. In the last few days, that rotation has been out of the broader market Dow stocks and into the NASDAQ and S&P. While Asia and Europe were down Wednesday morning, it was the S&P and Nasdaq futures that kept the index markets together yesterday.
In the last two days the volumes have picked up slightly. 1.5 million ESU (E-mini S&P futures) traded Wednesday and 1.4 million traded yesterday. The problem is when the S&P grinds higher but the volume slips to under 1 million contracts a day. By contrast, if the S&P sells off, the volume picks up, but even when you take Wednesday’s 1.5mil ESUs, that is 50% of the volume when the S&P sold off in June.
So when I use the term “thin to win” it describes those days when the volumes are low and there is no selling. It will be on such a day that the S&P breaks 1700.
S&P 1700 on tap:
We said last week that after such a big push, the S&P needed to do some back-and-filling, and that’s exactly what we got. Sure the ESU got down to 1672 in Globex yesterday, but it all comes down to one fact: There is no selling. After a few days of back-and-filling and a lack of any news or economic reports today, we think higher prices are coming.
Our view is to buy weakness using tight sell stops. Buy stops start above 1686 small to 1691-93 but get much bigger above 1699 up to 1706. If the S&P closes above 1690 on Friday we think 1706 will come early next week.
- It’s 7 a.m. CT and the ESU is trading 1677, down 7 handles; crude is down 1.10 at 104.39; and the euro is up 20 pips at 1.3266.
- In Asia, 5 of 11 markets closed up, five down, with one (BSE 30) unchanged (Shanghai Composite -0.51%, Hang Seng +0.31% and Nikkei -2.97%).
- In Europe 6 of 12 markets are trading lower (DAX -0.54%), FTSE -0.41%).
- Today’s headline: “Fed stimulus debate leaves dollar at five-week low”
- Total volume: 1.4mil ESU and 7.3K SPU traded
- Economic calendar: Consumer sentiment; earnings from Tyco, KKR, LyondellBasell and Stanley Black & Decker
- Fair value: S&P 1684.95 (-6.95), NASDAQ 3054.77 (-10.02)
- MrTopStep Closing Print Video: http://mrtopstep.com/2013/07/mrtopstep-closing-print-07-25-2013/