The S&P Greek DIP and post-election RIP

There is a BLIZZARD heading toward the East Coast and the NYSE won’t close. Why don’t the people that run these exchanges understand the floors are all electronic!?!

After Friday’s S&P emini volume dropped to 1.3mil, yesterday’s 1.25 million contracts clearly showed that traders are cutting back. After a few good downside false starts in January, many traders we talked to said the year started out on a good note but that last week’s selloff and rally was another painful example of what happens after a 4- or 5-day decline in the S&P 500 (^GSPC:SNP). Friday we saw the early rip and the Pre-Greek election DIP and last night it was the Globex dip and the Greek election RIP. As I have always said, the S&P never does what everyone wants it to do when they want it, and the shorts learned that again today.

Adding to the overall thinness and low volume was the threat of a major blizzard on the East Coast. Many NYSE and NY Mercantile Exchange traders and floor staff we spoke to said they were going to hotel rooms near the exchanges. With the NYSE volume the lowest of the year, the markets short covered all day. In the S&P there was an early selloff and then a big low-volume grind higher. The Dow Jones Industrial Average (^DJI:DJI) gained 6 points, or less than 0.1%, to 17678.70. The S&P 500 closed 5.27, or 0.3% higher, to 2057.09 and the Nasdaq Composite (NQH15:CME) gained 13.88, or 0.3%, to 4771.76.

S&P overlooks Russian downgrade

The S&P 500 futures (ESH15:CME) made a low at 2035.00 in Globex and basically traded higher all day, trading all the way up to 2053.70. After the selloff Sunday night, many investors said they did not think Greece would cause major financial stress or spread to other countries in the Eurozone. And with the Euro currency trading down into the 1.11 handle, it was clear to see money moving out of Europe and back to the US. Tom Wright , director of JP Morgan Securities in New York, said, “We’ve learned that, in and of itself, it should not have much of a ripple into our market.” You could see before the US open that Europe had started the day mixed and turned positive, with the German DAX closing at another new all-time high, up 1.5% on the day.

In addition to shrugging off the Eurozone worries, the S&P also seems to be detaching itself from the weight of the oil slump. The late-day rip yesterday happened even as crude languished around $45 a barrel. The market seems to be getting used to lower oil prices and looking past the damage to the energy sector to the overall recovering US economy.

We haven’t forgotten that last week we called for 2100 in the S&P this week; we’re not prepared to go back on that. While predicting the market’s direction is not the greatest skill in trading–making sure your wins outweigh your losses is–it’s still helpful to stay focused on larger trends when all around you seem to be caught up in short-term fluctuations.

In Asia 9 of 11 markets closed higher and in Europe 9 out of 12 markets are trading lower this morning. Today’s economic calendar starts out with the first day of the FOMC two-day meeting, durable goods, Redbook, S&P Case-Shiller HPI, PMI Services Flash, new home sales, Consumer Confidence, Richmond Fed Manufacturing Index and earnings from (before bell) 3M (MMM), American Airlines (AAL), Bristol-Myers Squibb (BMY), Caterpillar (CAT), Coach (COH), Pfizer (PFE), United Technologies (UTX), (after bell) Apple (AAPL), Amgen (AMGN), AT&T (T) and Yahoo (YHOO).

This is far from over

Our View: The ESH made a high at 2057 on Friday and a low of 2025.50 during yesterday’s Globex session and managed to close only 4 handles off Friday’s high— in the middle of a New York blizzard. Plain and simple, the short sellers got completely run over. Our call to sell the early rallies and buy weakness over the last few days has been right on, but we are not sure the ES is just going to take off again today.

The failure to make a new high makes it seem to be stuck in a range. But the other side of the coin is, do the mutual funds try and mark things up at month end? With all the talk of January predicting how the year will go, funds will want to see a strong finish to the month. With the ESH up 5 out of the last 6 sessions, we lean to selling rallies today.

Video: The S&P Greek DIP and post-election RIP

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

• In Asia 9 of 11 markets closed higher: Shanghai Comp. -0.89%, Hang Seng -0.41%, Nikkei +1.72%
• Earlier in Europe 9 of 12 markets are trading lower: DAX -1.02%, FTSE -0.51%, MICEX +1.90%, GD.AT -3.37%
• Fair value: S&P -6.09, Nasdaq -6.94, Dow -67.39
• Total volume: 1.25mil ESH and 4.4k SPH traded
• Economic schedule: First day of the two-day FOMC meeting, durable goods, Redbook, S&P Case-Shiller HPI, PMI Services Flash, new home sales, consumer confidence, Richmond Fed Manufacturing Index and earnings before bell from : MMM, American Airlines, Bristol-Myers Squibb (BMY), Caterpillar (CAT), Coach (COH), Pfizer (PFE), United Technologies (UTX), and after the bell: Apple (AAPL), Amgen (AMGN), AT&T (T) and Yahoo (YHOO).

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