After the S&P had its largest jump in more than a year and and the Nasdaq rose the most since January 2013, the markets took a breather.
Yesterday the S&P futures (ESZ14:CME) fell for the first session in 5 days. A combination of going up too fast and better than expected earnings from Boeing gave traders a reason to sell. Boeing said that the company’s quarterly profits rose 18% but also reported that the higher cost for its Dreamliner 787 are not subsiding as hoped.
The Dow futures (YMZ14:CME) traded slightly higher (50 points) in the morning before falling over 200 points into the close. The S&P futures traded up to a high of 1943.75, 5.5 handles higher and sold off 23.50 handles all the way down to 1920.25. After several failed rally attempts, the S&P 500 (^GSPC:SNP) made news just before the close and then rallied after the cash close showed MOC sell $600mil.
Best 6 months for stocks coming up
I am sticking to my call made in August that the S&P would get past the September quadruple witching, see some selling into the quarterly rebalance, sell off into the “spooky” month of October and then start to rally as the S&P does into the best 6 months for stocks and a push back up to 2100.
So far, so good; but I have to admit that the “meltup” of the last few days was a startling reminder of the power of zero borrowing cost and further quantitative easing by the Fed. It was a vicious rally that swept the shorts out. Does this mean that the S&P can’t go back down? No, I imagine, based on how the VIX is trading, that there will be more big rallies and drops before 2014 comes to a close.
I really do not get the feeling that the jump in volatility is going to change much, but I also do not think the S&P is going down. While the selloff from September to October was big, what we learned is exactly what MrTopStep has been saying for years … that it takes days and weeks to knock the S&P down and only one to bring it back!!
In Asia, 6 of 10 markets closed lower and in Europe 8 of 12 markets are trading lower. Today’s economic calendar includes Jobless Claims, Chicago Fed National National Activity Index, FHFA House Price Index, PMI Manufacturing Index, Leading Indicators, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 2,5,7 Yr-Note Announcement, 30 Yr TIP Auction, Fed Balance Sheet, Money Supply and earnings from General Motors (NYSE: GM), Microsoft (NASDAQ: MSFT), Amazon.com (NASDAQ: AMZN), and Comcast (NASDAQ: CMCSA).
S&P recovers 4.1% of 7.5% drop
Our view: The ESZ rallied over 130 points in 4 days before giving way to the downside yesterday. While most of the news channels said there was no specific reason for yesterday’s selloff, I think it was easy to see that traders sold the better earnings after a big push up. Our view is to sell the early rally and buy weakness, keeping in mind that +20 handle ranges are the new norm.
As always, please use protective buy and sell stops when trading futures and options.
In Asia 6 of 10 markets closed lower: Shanghai Comp -1.04%, Hang Seng -0.30%, Nikkei -0.37%
In Europe 8 of 12 markets are trading lower: DAX +0.14%, FTSE -0.46%, MICEX -0.68%
Fair Value: S&P -6.33 , Nasdaq -9.08, Dow -75.26
Total Volume: 2Mil ESZ and 8.4K SPZ traded
Economic schedule: Jobless Claims, Chicago Fed National National Activity Index, FHFA House Price Index, PMI Manufacturing Index, Leading Indicators, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 2,5,7 Yr-Note Announcement, 30 Yr TIP Auction, Fed Balance Sheet, Money Supply and earnings from General Motors (NYSE: GM), Microsoft (NASDAQ: MSFT), Amazon.com (NASDAQ: AMZN), and Comcast (NASDAQ: CMCSA).