The Asian markets closed modestly lower and Europe is mixed to lower. Correction or crash? Taper or no taper? The bottom line is there has been a big shift going on for the last two months. In the beginning of the year I was big on saying that if you wanted to know where the S&P was going all you had to do was follow the money. As billions poured into the stock market, we could see it every day in the closing imbalance.
For the first 5 to 6 months of the year the 2:45 CT cash imbalance was a great way to see how new money came flowing into the broader market. In late May and June there was a clear shift to “sell side” closing imbalances. While we know this is not a perfect science, we do believe that all the selling has finally caught up with the stock market.
By keeping rates down and pouring money into the system, the Fed has helped inflate the price of the stock market. In a no-interest world, mutual funds were forced out of bonds and into stocks. One sector that has been under fire is retail. Wednesday, Macy’s reported its first miss in 25 quarters and posted lower-than-expected second-quarter fiscal 2013 results. Yesterday Walmart reported that earnings met expectations but sales slipped. And despite an 18% increase in income, Cisco announced that it was cutting 4,000, jobs saying the firm wanted to be nimbler amid a slower pace of sales growth. And many of the traders we spoke to on the floor said the most recent jobs data supports tapering the Fed bond buying program.
Generally when the S&P does a “flunk-a-dunk” like it did yesterday and closes on the day’s absolute low, that is not a good sign. However, the Asian and European markets did not get beat up like the S&P did yesterday. Thus the S&P is up 4.25 handles at 5:30 am. This bounce could be tied to the July expiration. The Dow sustained its worst loss since June, the 225-point decline being its second consecutive triple-digit decline following Wednesday’s 133-point decline. At the high, the Dow was up 19.5% on Aug.2 and as of yesterday’s close is up 15.3% year to date. Our view is that the decline is probably not over. Can the spoos bounce today? Sure, but the dark clouds surrounding the markets are not going to go away anytime soon. When so many market timers are talking about the crashes and Hindenburgs, it maybe hard to overcome. We lean to selling rallies and may buy the dip, but we are looking for a bounce to buy some puts.
As always, keep an eye on the 10-handle rule and please use stops when trading futures.
Lastly, please find an hour to look at the Pit Bull speaking at Amherst College. He has been my friend for a long time but I still love hearing him talk. “A Market Wizard Speaks: Marty Schwartz speaks at Amherst College, Spring 2013.” At Marty’s request, we are offering the full video free of charge to you and the world. Few people trade as well as Marty does. Even fewer are willing to share what they’ve learned.
- In Asia, 10 out of 11 markets closed lower: Shanghai Comp. -0.64%, Hang Seng -0.10% , Nikkei -0.75%).
- In Europe, 7 out of 12 markets are trading lower (DAX -0.19%, FTSE -0.08%).
- Morning headline: Dollar, stock futures, gold and crude all up ahead of US data
- Total volume: 2.4mil ESU and 11.2k SPU traded
- Economic calendar: Housing starts, productivity and costs, Michigan consumer sentiment
- Ned Davis Expiration Study for August 2013: http://mrtopstep.com/2013/08/expiration-study-for-august-2013/