The prospect of a US-led attack on Syria is about more important things than stock portfolios, but it does raise the issue of what war can do to the economy. The market’s answer to that question this week was typical. When the bus gets too full it tends to go the other way, and that is exactly what we saw yesterday in the S&P 500 futures. Traders can have all the reasons in the world for why the S&P reverses, but the first and foremost reason is simple: a good old short covering rally.
After making an early low at 1625.00 the SPU (big S&P) traded all the way up to 1639.00 before retreating late in the day. While the S&P did stage a 14-handle rally, there was not much real buying. The algos knocked out the sell stops early on and then started taking out the buy stops. The news went from a pre-planned attack to the president not being able to order the attack without congressional approval. Despite a big sell side imbalance, the ESU popped up late in the day, but failed to carry through on the upside and reversed back down when the 2:45 SPX imbalance showed MOC SELL $700mil.
Uneasy feeling
Part of being on the floor is the feeling you get. Forget open outcry. Fighting and yelling still go on in the pits, but it’s not like it used to be. When you’re around so many quotes and flashing news headlines and following the S&P cash (yes, the cash) you can actually see how the cash reacts when an algorithm or a program is hitting the ES. Sometimes the program are big , sometimes they are small, and sometimes the futures are so quiet it’s hard to run any program at all. That is when the ES goes from doing nothing to dropping 3-4 handles out of nowhere. Like a winding top, it tests and tests until it blows through.
Long weekend
Get your playbook out and start keeping track of your economic calendar. There are two trading days left in August, and today, the day before the last trading day in August, has the S&P up just 2 times out of the last 15 years. Investors and traders were already nervous, but Syria has added a whole new level of uncertainty.
Look, I don’t have to read any other website to understand what’s going on. We have been here before, but this time it could get very ugly. For months the Russians have done everything they can to support Assad without putting boots on the ground. After their snub of Obama and the American people with the Snowden asylum offer, this is a chance to reassert American power. But at what cost? Most signs point to an impending attack; it’s what happens as we carry it out or afterwards that worries the markets and the American public, which remains deeply skeptical of further U.S. military involvement overseas.
Like it or not, while most people are enjoying the Labor Day holiday and Rosh Hashanah in the U.S., our military may be executing a strike on Syria, Iran’s neighbor and “front door” to an even wider Middle East war. It affects our public policy as well as our personal portfolios.
The Asian markets closed mostly higher and Europe is following suit. If you’re a risk-taker, now’s your time to roll the dice. Is the long crude trade over? Are the S&Ps oversold and going back up? Did people forget about the Fed’s taper? Despite people being still on vacation or not back fully trading, the markets are getting wild and it feels like they are gearing up for some type of big move.
Today we have 4 numbers and some Fed speak. It’s our guess we’ll see another round of bad numbers. Yesterday gold traded up to a 3-1/2 month high and the VIX traded up to 17.11 and settled at 16.77. It all seems to spell lower prices.
Our view is we are sticking with selling the rallies. If you want to play both sides, buy the early weakness and sell the rally, but we are sticking with just selling the rallies. Our range for today is 1620 to 1640 with a bias to the downside.[pullquote]Marty “the PitBull” Schwartz speaking at Amherst College[/pullquote]
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In Asia, 10 of 11 markets closed lower (Shanghai Comp. -0.19%, Hang Seng +0.84%, Nikkei +0.91%).
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In Europe, 10 out of 12 markets are trading higher (DAX +0.14%, FTSE +0.67%)
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Morning headline: U.S., U.K. Face Delays in Push to Strike Syria (WSJ)
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Economic calendar: GDP, jobless claims, corporate profits, natural gas inventories, 7-yr note auction, Fed’s Lacker and Bullard speak, money supply, and earnings from Campbell Soup, Pall, Salesforce.com, Splunk, Krispy Kreme
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Total volume: 1.64mil ESU and 7.4k SPU (mostly ETFs) traded
- MrTopStep Closing Print Video
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