By Danny Riley
Long before the jobs numbers were released last Friday, we said to “expect” a surprise on the upside. In fact, here is a copy of our view sent out Friday morning before the jobs numbers were released.
10/5/2012 6:10am CT
The saying is “buy the dips and sell the rips,” and we think we have already seen the dip part of that equation. We are going to keep this short and sweet. We lean to better numbers this morning and higher prices. If the patterns we have been seeing over the last few months hold, we should get an up Friday. Helping that idea along are all the buy stops that go from the high 1459s all the way up to 1465. As always, please keep an eye on the 10-handle rule and don’t forget to USE STOPS!
Traders on the CME floor in the S&P pit always love to sell a gap up open, but after opening a few handles higher last Friday the ESZ started taking out the buy stops we spoke about in our morning call. After the ESU made its 1474.75 high on Sept. 14, it did exactly what it has done after making all the highs; it sold off for several days, got everyone short into the decline, made a higher low and then started moving back up again. When that happens, the buy stops start to build up again and once the short covering starts, the premium levels between the ES and the S&P 500 cash widen out. As the ES starts moving higher, the buy stops help lift the offer in the ES that creates an index arbitrage buy program.
On Friday, once the ESZ started hitting the buy stops above 1459, the algorithms targeted the buy stops all they way up to 1466. After the ESZ made its high and started pulling back, the reverse occurred. As the premium levels between the ESZ and the S&P cash slipped and after a few failed short covering rallies, the ESZ started to hit sell stops. Those sell stops hit the ESZ bids that created the index arbitrage sell program. If you had to sum it up, the ESZ hit buy stops and ran buy programs in the morning, exhausted itself and slowly reversed, hitting sell stops and running sell programs in the afternoon. That is what happened in Friday’s S&P 500 futures trade.
For several weeks now the S&P futures have been starting out the week on a down note. Monday, which we used refer to as “Mutual Fund Monday,” no longer holds its title as our favored buy day. In fact, 10 out of the last 12 Mondays in the S&P futures have closed lower. The new pattern has been to keep the S&P futures weak Monday through Wednesday and firming up on Thursdays and Fridays. To learn more about what’s happening minute-to-minute on the trading floor and the screens, join us and all the other top traders in the MrTopStep IM Pro chat room.
MrTopStep Closing Print Video: http://www.mrtopstep.com/mrtopstep-closing-print-video-1052012/
Friday’s weak close in the S&P has been followed up by weakness in both China and Europe. Last Friday we ran the buy stops and it looks like the S&P may be looking to do the opposite this morning. With the currencies and bonds closed for the Columbus Day holiday and Europe closing at 10:30 CT, this may be a very short day. Our view is to look to sell the early rally and then buy weakness. As always, keep an eye on the 10-handle rule and please use stops.
- It’s 6:00 a.m. and the ESZ is down 5.75 handles, CL is down 1.07 at 88.81 and the EC is trading 1.2951, down 91 ticks.
- In Asia 8 of 11 markets closed lower (Shanghai Comp -0.56%, Hang Seng -0.89%).
- In Europe 10 out of 12 markets are trading lower (CAC -1.30%, DAX -1.48%).
- Today’s headline: “S&P Futures Drop as World Bank Sees Asian Slowdown.”
- Economic calendar: Today: Columbus Day—banks/bond market closed; stock market open. TUESDAY: NFIB small biz index, 3-yr note auction, FedEx investors mtg, P&G shareholders mtg; earnings from Alcoa, Yum Brands. WEDNESDAY: Weekly mortgage apps, wholesale trade, 10-yr note auction, Beige Book, Treasury budget, Wal-Mart investors mtg; earnings from Costco.THURSDAY: International trade, jobless claims, import/export prices, oil inventories, 30-yr bond auction. FRIDAY: PPI, consumer sentiment, GM resumes Volt production; earnings from JPMorgan, Wells Fargo.
- VOLUME: 1.67 mil ESZ and 6.8k SPZ traded
- SPREADS: SPZ/H spreads traded (none)
- FAIR VALUE: S&P -6.00, NASDAQ -16.00
- 2012 NET CHANGES: Dow +11.40%, NASDAQ + 20.38%, S&P 500 +16.17%, VIX -38.76%
Friday, Oct. 5 – VOILA!!! The NFP number was reported to be 114k vs exp 113k and the unemployment figure was reported as 7.8% vs exp 8.2%, previous 8.1%. Also, employment figures revised up substantially for previous two months, +86,000. Revisions were almost entirely in public sector…Shortly after the report was released the cynics were out – proclaiming manipulation – plenty of retorts followed with plenty more to come. The monies spent on this election are beyond ridiculous reaching new records as the tone reaches for new lows. What happened to content and the issues, challenges in front of the US. Traders should focus on the nes and not be distracted by the hype. Moving on, the financials have been one of the leaders as the mortgage rates have hit record lows, even as the Fed recently reported (on top of previous fines of late) they are looking into JPM, Credit Suisse…assuming others to follow just sayin… Recent economic data has not been declining as rapidly as earlier in the year and previous to that with some sectors holding and some sectors firming. The semi’s and the transports have garnered many of the laggard headlines as the spoos have essentially gotten back to its 1468 high – without AAPL which traded down to 652.7… falling from its high of 705. ROTATION – man get used to it.
Morning observations: volume a bit low considering the employment data and the Eurozone headlines….all the smoke & mirrors.
Differences Between Greece, Troika Exist In All Areas Of Talks, Source Tells DJ-WSJ
Rajoy: Spain Has Not Taken A Decision Yet On Bailout BBG
Headlines are and will be coming fast and furious – as the content and the tone can only worsen over the next 32 days… Personally, I am not looking forward to the coming headlines from the elections here or Eurozone as the austerity measures continue to play out.
Friday started with 336k ESZ and 1.5k SPZ traded on Globex, trading range 1464.00 – 1454.50 / Thursday’s RTH’s, pit range was 1457.50 – 1449.00, settled at 1455.80 up 11.1 handles. Today’s RTH’s gapped 7.5 handles higher to 1463.50 – 1463.30 and traded in a very tight range of 1461.00 – 1464.30 until 9:20. 2XTOP OFF 1467.50 9/14 HIGHS EUBIE (09:24:04): lets start a legg SHORT 1465/66 SWING and the spoos trade 1460.30 by 10:45. EUBIE (10:25:45): SPZ 1461.75 PUNCH & 2XBottom TEST // 1461.50 RIGHT SHOULDER EITHER BLOWS OUT OR NECKLINE / min charts. After making the high the SPZ stair stepped down to 1459.50 at 11:09CT followed by a lower high of 1462.50 11:44. The SPZ then made a lower low at the 1457.50 area at 1:10CT, then rallied back up near the 1462.00 area before selling off to 1454.50 to 1453.50, tried to hold, made a new low at 1452.50 (Mike Vs daily pivot) and then rallied back up to 1454 area at 2:20CT. Bottom line here; its been a slow grinders all day. Total DOW volume is only 382M shares and only 1.35mil ESZ and 3.8k SPZ traded – very low for an a major release like jobs. After making the 1452.50 low the SPZ short covered back up to 1445.50 then back down to the 1453.50 area and then down to new lows at 1451.50 just before the cash close. At 2:45 28 of the DOW 30 where to buy (size) and the broader market showed BUY $700M. The SPZ then traded back up to the 1455.00 area. On the 3:00 cash close the SPZ traded 1455.45 and then settled at 1455.50 on the 3:15 futures close, down just .3 handles on the day.
MrTS charts: In SPU’s we are up +40 HANDLES BOYS FROM THIS CALL LAST WEEK 1425 http://www.mrtopstep.com/mrtopstep-charts-i-gotta-case-of-the-bollingers-esz-1425-cl-89-bonds-zb-144/
Richard Chappell, Channels & Patterns
On the SPX daily chart yesterday we saw a clear break up from the middle bollinger band and the minimum target for that break is the upper bollinger band, which was at 1472 at the close yesterday. I’m expecting a retest of the highs and most likely another smaller retracement from there to test (and possibly break) SPX rising channel support, which was not hit on this retracement and is unfinished business below. That said the daily bollinger bands have pinched in, and historically that has generally led to a strong trending move that pushes the upper bollinger band up considerably. If we don’t see a reversal in the 1470-80 SPX area, the upside target would therefore be at rising channel resistance in the 1500-20 area, which also has some longer term resistance that I will be talking about in detail if we see no reversal near the current 2012 high:
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