US stocks traded lower Wednesday after hitting their 43rd record high of 2014 on Tuesday. While some profit-taking and digestion was to be expected after the big move up earlier this week, the FOMC minutes and weak manufacturing reports from Europe and China also weighed on the markets.
Range-bound market
The S&P 500 futures (ESZ14:CME) defined an opening range of about 10 handles and then stayed within that range from 2038 to 2048 for the rest of the day. A brief rally to 2050 occurred around 1 pm CT, driven by index arb buy programs, but failed to retest the previous day’s high of 2054. After that, the futures and the markets as a whole fell sharply as bearish news also became widely broadcast.
Futures on the Standard & Poor’s 500 Index (^GSPC:SNP) expiring in December dropped 0.4 percent to 2,038.8 at 5:36 am CT. Dow Jones Industrial Average (^DJI:DJI) contracts fell 62 points, or 0.4 percent, to 17,595. Minutes from the Federal Reserve, released yesterday, showed some policy makers were concerned inflation isn’t rising fast enough.
Global growth fears
To further cloud optimism, manufacturing data from both the Euro zone and China were worse than expected, prompting speculation about a global slowdown. While such pessimism is a factor globally, it also sometimes serves to drive investors out of European and Asian stocks and into US markets.
In Asia 6 of 11 markets closed lower and in Europe 8 of 12 markets are trading higher. Today’s economic schedule is heavy and includes the Weekly Bill Settlement, Fed Gov. Daniel Tarullo speaking to the Clearing House Assoc. in New York, Consumer Price Index, Jobless Claims, PMI Manufacturing Index Flash, Bloomberg Consumer Comfort Index, Philadelphia Fed Survey, Existing Home Sales, New York Fed President William Dudley testifying to the Senate Banking subcommittee on Financial Institutions and Consumer Protection on improving supervision, Leading Indicators, EIA Natural Gas Report, a range of Treasury announcements and auctions, Cleveland Fed President Loretta Mester speaking in London on forward guidance, Fed Balance Sheet, Money Supply, San Francisco Fed President John Williams on a panel at a Bank of Korea conference on rebalancing macroeconomic growth, plus earnings from Best Buy Co (NYSE: BBY), Dollar Tree (NASDAQ: DLTR), The Gap (NYSE: GPS), and Ross Stores (NASDAQ: ROST).
Our view
Asia and Europe are down on global growth concerns this morning. The way it looks right now is the markets are tired. According to the S&P cash study the Thursday before the expiration has been up 17 / down 13 of the last 30 occasions, and tomorrow, the Friday of the November expiration, has been up 20 / down 10 of the last 30 occasions. That said, it feels like the S&P is tired. We lean to buying the early weakness and selling rallies. The ESZ may drop a little further but we are keeping an eye on the Globex low in the first part of the day. We still think the ESZ is going up but it has to find support after the global selling first.
Video: Fibonacci update from TopNotch Trading
November expiration study link: http://mrtopstep.com/?p=53835
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 of 11 markets closed lower: Shanghai Comp. +0.07%, Hang Seng -0.10%, Nikkei +0.07%
- In Europe 11 of 12 markets are trading lower: DAX -0.70%, FTSE -0.61%, MICEX +0.38%
- Fair value: S&P -2.45, Nasdaq -0.26, Dow -32.17
- Total volume: 1.2Mil ESZ and 6.4K SPZ traded
- Economic schedule: Weekly Bill Settlement, Fed Gov. Daniel Tarullo speaking to Clearing House Assoc. in New York, Consumer Price Index, Jobless Claims, PMI Manufacturing Index Flash, Bloomberg Consumer Comfort Index, Philadelphia Fed Survey, Existing Home Sales, William Dudley testifies, Leading Indicators, EIA Natural Gas Report, a range of Treasury announcements and auctions, Loretta Mester speaks, Fed Balance Sheet, Money Supply, John Williams speaks, plus earnings from Best Buy Co (NYSE: BBY), Dollar Tree (NASDAQ: DLTR), The Gap (NYSE: GPS), and Ross Stores (NASDAQ: ROST).
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