The S&P 500: How High is High?

So, how high is high in the S&P? Unlike many, we have been in the S&P futures since 1985 and have been there for every major stock market event from the ‘87 crash to the credit crisis. We were there during Gulf War 1 and we were there for Gulf War 2, we were there for the tech bubble and we just got back from Dubai a few days before 9-11 and we were there for the flash crash, and we have fought for customers the whole time. So we know what the phrase “how high is high” means.

In good and bad times we have stayed with the S&P, but somehow the S&P has not gotten back to where it was when it made its all-time intraday high at 1552.87 from more than 12 years ago. Some things in life are hard to forget, and the 2000 dot-com bubble would be one of those times. On March 24, 2000, the S&P cash traded up to its all-time high and then went on to lose 50% of its value during the two-year bear market that ensued. In the bear market of 2002 the Dow sold off under 800 and made an intraday low of 768 on Oct. 10, 2002. The S&P stayed below its 2000 all-time high for 7 years, until on May 30, 2007, it set its first new all-time high at 1530.23 and reached its all time high at 1556.14 on Oct. 9, 2007. The market were trying to move higher just as the credit crisis started. Few people caught on as quickly as the Pit Bull did. While reading the tape is much harder to do today, he was and still is one of the top tape readers in the world. A tireless worker, he would trade all day and chart 500 stocks at night. At the onset of the credit crisis he would say things like “there is rotten wood floating around in the financials” and tell me that the market leaders, the banks and brokerage stocks, were falling apart. He told me in early 2007 that there was going to be an enormous shift of wealth out of the United States and says today he has no idea how this is going to end.

Earlier, 1998-1999 was the year of the day trade. Every Tom, Dick and Harry was an internet stock trader. Kids wearing shorts to work were buying and selling tech names that most did not even know what the company made. Buying stocks for $20 and $30 and selling them for $100 or $200 only days later. Literally, kids making hundreds of thousands of dollars with absolutely no experience in trading the markets. They were smart to jump on the bandwagon, but when the music stopped the ending was about something they thought they would never hear: liquidation.  There is an old saying we have learned and it’s called “get in, get out, never fall in love with your position.” Back then the day traders only knew one side of the trade — buy.

So here we are back at the old highs and less than 100 handles off the S&P’s all-time highs. Bonds have sold off and Europe and the U.S. are busy printing new money. The presidential cycles favor the incumbent and it looks like it’s all clear sailing from here. As the stock market approaches multi-year highs, there is no cheering or confetti. And while the stock market is enjoying a big-time upside party, the term “fiscal cliff” is going to replace the words “ECB” and “Fed” soon.

Mutual Fund Monday
Monday July 9 S&P -2.6 handles
Monday July 16 S&P -4.3 handles
Monday July 23 S&P -14.5 handles
Monday July 30 S&P -2 handles
Monday Aug 6 S&P +.90 handles
Monday Aug 13 S&P +.10 handles
Monday Aug 20 S&P -.50 handles
Monday Aug 27 S&P -1.5 handles
Monday Sept  10 S&P -11.8 handles
Monday Sept 17 ????????

7 out of the last 9 Mondays have been down.

MrTopStep Closing Print Video: http://www.mrtopstep.com/videos/

Our view:
The only economic number out today is the Empire State manufacturing survey. Mutual Fund Monday has turned into a train wreck with 7 out of the last 9 being down. I am sure if we went back further the stat would get worse. That said, the S&P has gone a long way and has yet to really buckle. We do not know when this is going to change. However,  we lean to looking for a spot to sell the early rally, then look to buy weakness. As always, keep an eye on the 10-handle rule and please make sure to use stops when trading futures.

• It’s 5:30 a.m. and the ESU is down 2.25 handles at 1456.75, crude is down 19 cents at 98.97 and the EC is at 1.3122, down 6.
• In Asia 7 out of 10 markets closed higher (Shanghai Comp. -2.14%, Hang Seng +0.14%).
• In Europe 9 out of 12 markets are trading modestly lower.
• Today’s headline: “US Stock Futures Decline After S&P Rally.”
• Economic calendar:  Today: Empire state mfg survey. TUESDAY: Fed’s Evans speaks, current account, Treasury int’l capital, housing market index, Fed’s Lacker speaks, Ford Fusion launch; earnings from FedEx. WEDNESDAY: Weekly mortgage apps, housing starts, existing home sales, oil inventories; earnings from AutoZone, General Mills, Adobe Systems, Bed Bath & Beyond. THURSDAY: Jobless claims, Philadelphia Fed survey, leading indicators, Fed’s Kocherlakota speaks; earnings from CarMax, ConAgra, Rite Aid, Oracle. FRIDAY: Quadruple witching, Fed’s Lockhart speaks, iPhone 5 shipping date.
• 2012 net changes:  Dow + 11.26% YTD, NASDAQ +22.22% YTD, S&P 500 +16.55% TYD, Russell 2000 +16.71% YTD, VIX -37.99%.
• FAIR VALUE: S&P -2.50, NASDAQ  -1.00