The fear gauge [^VIX:Chicago options] closed on a 6-week high, up 6 days in a row, while the Dow Jones Industrials [YMZ13.CBT] slid the most since late September. The Dow made its third lower close in a row as more traders started to refocus on when the Federal Reserve will cut back its $85 billion a month bond purchases. The Dow closed down 94 points or -0.59%, the S&P 500 closed down 5.75 points and the Nasdaq Composite closed down 8 points or -0.20%.
Over the last 5 days the “cash” sellers have ganged up on the close, selling over $7.5 billion in the broader market. That selling and the EUR/JPY trading up to its highest level since October of 2008 lent weakness to the S&P futures [ESZ13:CME].
After opening lower, the futures rallied and reversed back down. Crude oil was up and 30-year Treasury bond futures (USZ13:CBT) closed at 131’17, up slightly after Monday’s 25/32 drop. Everything had the making of another afternoon letdown as the VIX rose to a new six-week high.
[pullquote]The Asian markets closed mostly lower and in Europe 9 out of 12 markets are trading lower. Today’s economic calendar includes MBA purchase applications, the ADP employment report, the Gallup U.S. job creation index, international trade, new home sales, the ISM non-mfg index, the EIA petroleum status report and the Beige Book. [/pullquote]When the MrTopStep imbalance Meter went on at 2:00 CT showing 67% sell side and and $312mil for sale and dropped down to 69% sell side and -$440mil for sale, everything was set for another selloff, but when two of our imbalance outlets both said they saw stock for sale they also said the “selling was not going to be that large” and when it was all said and done the ESZ13 sold off down to 1788.50 and then rallied up to 1794.25. Many people asked how that could happen—MiM showing a sell and the S&P going up. Below are a few reasons…
Apple [AAPL:Nasdaq] rose +2.7% to its highest level in a year after UBS put out a buy recommendation and a price target of $650. UBS increased their F14 estimate in anticipation of the China Mobile deal and the emergence of cloud computing. UBS said AAPL has a favorable risk-reward potential, is cautiously optimistic long-term, and expects the multiple to expand.
The Federal Reserve’s Open Market Operations monetized a total of $5 billion at 10:00 AM and 1:00 PM CT and plans to purchase $45 billion in Treasury securities over the month of December. While traders may be talking taper, it is very unlikely the Fed will even consider the idea until the first quarter of 2014.
Not big enough
[youtube id=”fPUNdu0rQKQ” align=”left” maxwidth=”300″]Futures traders who expected a selloff on the close were not only affected by the smaller sell imbalance but also late-day futures bets that expected more selling to show up. After so many billion-dollar-plus sell imbalances, the – $130mil to – $300mil for sale was just not big enough to keep the futures down. When a lot of people start talking lower prices in the S&P we think the selling will end quickly and the S&P will go right back up!
Today’s ADP number is the leadoff to Friday’s jobs number. With a pickup in retail holiday sales and a higher estimate for this Friday’s non-farm payroll (180,000 with a consensus range of 140,000 to 200,00), MrTopStep thinks the number will be above the consensus.
S&P 26% gain best since 2003
It doesn’t matter if it’s a quick rush or a sustained rush: once everyone thinks the markets are going down, they reverse. Does that mean the decline is over? Not necessarily, but we also don’t think the cash selling can continue as it is. When the seller takes his finger off the sell button the ES will go back up.
The Pit Bull and I both agreed that the first 10 days of December can be a shaky time but we also both agreed that the we are probably not far off from a bounce. Our view is to buy the early weakness. Sure, you can sell the rally, but we think the S&P 500 (ESZ13:CME) will end up higher on today’s close.
In Asia, 8 of 11 markets quoted closed lower: Shanghai Comp. +1.31%, Hang Seng -0.76%, Nikkei -2.17
In Europe 6 of 12 markets are trading lower: DAX +0.25%, FTSE +0.08%
Morning headline: S&P Futures Seen Higher Ahead of APD Employment Report
Total volume: ES 1.73M, SP 9.8K
Economic calendar: MBA purchase applications, the ADP employment report, the Gallup U.S. job creation index, international trade, new home sales, the ISM non-mfg index, the EIA petroleum status report and the Beige Book