The Waiting Game
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
By Danny Riley
Three trading days into the final quarter of 2012 and not much has changed. Somehow, some way, the markets are “always waiting” on something. If it's not the ECB it's the Fed minutes (today), if it's not the election it's the holidays that are closing in and so on and so on. Next Monday is the Columbus Day holiday, when foreign exchange and interest rate (CME and CBOT) open outcry markets will be closed and the S&P is open. Somehow we are “always waiting” on something …
As traders we need movement. If you're an ES trader, I am sure you are yearning for more action. If you're a crude trader you are probably asking for less; that's how it works. The traders in the S&P pit in the CME are always waiting for something too. Part of the rich history of being an S&P trader has not been on the upside, it's always been on the downside. Locals and floor traders have always loved a down market, big selloffs and crashes. It's what they dream of. It's how many “no-name” traders made a name for themselves and a lot of money. Of course there were plenty of “cerebral” traders too, but if you were 6ft. + and 230+ pounds and didn't mind not listening to the other locals, you could just muscle your way to a lot of cash. Nowadays you don't have to use muscle to get ahead in the pit, you just have to make the right trades. The debate will rage forever, but many of the floor population will say the street guys survived better, both back then and today. Many years ago, as the floor transitioned, they said only the smart would survive, but that's not necessarily how it worked. Many traders just gave up while others hung in there and those who did are still making good money. Many longtime futures traders we talk to say they only make 30% of what they used to before the credit crisis, but they also say they could not make that anywhere else. Yes, the floor has transitioned, but it's still alive and well, just not as busy as we would like it to be.
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I said earlier this week that I thought we would see a better jobs report and I still feel that way. This could change, but the S&P is still back and filling and made another higher low yesterday. There are two ways to play this game: sell the early morning rally and then look to buy the weakness or just buy the weakness. There are a ton of buy stops building up above 1453 up to 1458 and then again above 1459.70 up to 1463. Today we have some big numbers to get past and later we have the Fed minutes. As always, please keep an eye on the 10-handle rule and please make sure to use stops.
- It's 5:30 a.m. and the ESZ is up 4.75 handles at 1449.50 (1453.00 overnight high), crude is up 59 cents at 88.73 and the EC is trading 1.2957, up 48 ticks.
- In Asia 8 of 11 markets closed higher
- In Europe 7 out of 11 markets are trading modestly lower (CAC +0.14%, DAX -0.17%).
- Today's headline: “Global Stocks Climb Before Central Bank Policy Meeting, US Jobs.”
- Economic calendar: Today: Chain-store sales, Challenger job-cut report, jobless claims, factory orders, FOMC minutes. FRIDAY: Non-farm payrolls, consumer credit
- VOLUME: LOW 1.54mil ESZ and 4.7k SPZ traded
- SPREADS: No SPZ/H spreads traded
- FAIR VALUE: S&P +5.5, NASDAQ +8
QE3 has accomplished one of the intended tasks of keeping mortgage rates at record lows as evidenced by today's huge uptick in mortgage applications as the banking sector went along for the ride. I for one can't wait for tonight's first presidential debate. As Joe Friday used to say in the 1960s black and white “Dragnet” series – Just the facts, nothing but the facts… LOL Also, the ECB rate decision is expected tomorrow morning at 6:45CT with traders focusing on the direction Draghi takes during his presser at 7:30. The focus remains on Draghi's words used to describe the backing for Spain and Greece, the bailout funds. Will he be heavy handed in stressing that the strict austerity concessions be followed, pleasing his cohorts versus his all in support, extending unlimited backing.
Morning observations: Advice one would give their daughter: watch the actions, not the words.
* “The consensus of investors we surveyed last week expected the S&P to be 1560 by the middle of next year and 100% said they were bullish. But while institutional investors are feeling more bullish, our hedge fund survey and volumes suggest they have not yet increased their positions.” Source
* AAII poll shows bulls fall below 50% for the first time in 5 weeks.
* According to TRIMTABS, Short interest rose 307 million shares, or 2.2%, to 14.0 billion shares in early September. This increase was the first since early June. Our research shows that short interest is a contrary indicator, so we regard the increase as bullish for stocks. Short interest is down 685 million shares, or 4.7%, from the interim peak in early June.
* Note: We, by nature side with the contrarians. Also, both Tuesday and today only saw nominal follow-thru selling above the mid-Sept trading range, support area. Individuals bullishness has increased, but so has hedging by institutional traders as sentiment conspired to temper the rallies
* The following was posted here yesterday: It appears investors are defensively positioned while clawing at the wall of worry. Short-term indicators are close to oversold levels, so the market's inability to hold early gains suggests a generally weak condition. Sources say the probabilities suggest the correction from the mid Sept. high has not yet fully run its course.
ADP – DETAILS: ADP reports a net rise private job rise of 162k for September after a 189k gain in August (revised from 201k). That is a better showing than the median estimate, but the downward revision to August was roughly the same size as September's upside surprise, so the overall trend doesn't seem to have improved much, not at all, taking the 17k downward revision to July into account. Revisions tend to confirm that ADP has been running too high, but that still leaves a substantial gap between ADP's count of private hiring and the BLS count. Service firms added 144k jobs in September after a 175k gain in August. Goods producers added 18k, with factories accounting for 4k of those, construction another 10k. Small firms added 81k jobs, medium-sized firms added 64k and large firms added just 17k. Once again, it's worth noting that ADP tries to emulate BLS data, and may be boosting its small-business count in that effort.
Proposition 30, a Sales and Income Tax Increase Initiative – coming to a theatre near you!
Large Equity Option Interest: FTSE BIG TRADE a U.S. HF has bought +10k listed call calendar 6200 mar/jun (1.1 * 1.5 M GBP vega) He is bid for at least +5k, maybe +10k more…Big EUROSTOXX trades as well call ratio 2500/2575 October 1×3 traded 1 +25k*75k call ratio 2475/2550 October 1×3 traded 3.3 +10k*30k
Reports that Apple has deliberated over moving away from Intel chips in the Macintosh, say two people familiar with these discussions. Such a shift would be difficult and isn't imminent, though it would allow Apple to further distinguish its laptops and desktops from competitors that run Intel's (INTC) chips and Microsoft's Windows software. So, combine the deteriorating PC market with a move away from AAPL, and what does INTC have left???
Tuesday started with 270k ESZ and 600 SPZ traded on Globex, trading range 1436.00 – 1443.75 / Tuesday's RTH's, pit range was 1432.70 – 1445.80, settled at 1440.90 up 4 handles. Today's RTH's gapped 1.6 handles higher to 1443.00 – 1442.30, marking a brief high before stepping lower to 1441.40, 1440.30, 1437.50 and matched the Globex low of 1436.00 at 9:03 as crude threatening $90, down almost $2. 9:00 Non MFG ISM checked in at 55.1 vs exp 53.2. The bulls lacked conviction on the ensuing rally 1440 as the employment index dropped to 51.5 from 53.8 while inflationary component rose, but shhh – the Feds don't want the peeps to tell anyone… the spoos were retesting the OR at 9:17 and printed a new high of 1443.20 at 9:21. 1443.50 at 9:29 and back through the OR and held 1440 area before the blew through the the highs and by 10:13 traded 1446.50 as crude was down over $3, trading $88.90 area. Crude was trading below $90 when the DOE released inventories: Crude -482K vs the consensus of +1.5M; Gasoline +115K vs -500K. Distillate -3.689K vs -400K. Stanton_Analytics (09:50:44): Funds and algo's running in the bulls not pretty below 88.95. Not that it is good looking now…Crude traded down to $88.28 with chatter of margin selling. By 11:45 the spoos clawed their way up to 1448.30 HOD and faded back to hover just above the opening range area. At 1:55 crude was trading at new lows of $87.78, down $4.11. The spoos briefly dipped to EUBIE (14:13:12): BUY THESE 1441 & sell them into the “3′S and traded 1443+ EUBIE (14:17:51): nice 3 handle show for 5 minutes. 1445.00 traded at 2:29 EUBIE (14:32:44): INTC HPQ lows in the DJIA / and AAPL making new highs $670, nazzy was unable to capture its 10 and 20ma. The closing imbalance showed 16 of the Dow 30 to the sell side with decent size and the broader market showed only $63M to sell. On the 3:00 cash close the SPZ traded 1445.00 before settling at 1444.70, up 3.8 handles on the day.
MrTS video: http://www.mrtopstep.com/10-3-12-tim-haefke/
Roger Volz, BGC Partners
SP 500 Futures 60 min Chart and Indicator ….lower high / higher low has prices squeezing into Friday's NFP….RBA rate cut rebound sees early stall at resistance concentration from 1445.50 to 1446.50. Rising moving averages should cushion dips, at least in the am session. Our first technical downside reversal line comes in at 1437.25
ST OB > 1462.50 /// ST OS < 1422.50
Additional intraday readings
VST 5 min ……VST 5min OB > 1445.50 at 6:35am globex session /// VST OS < 1437.50
VST 15 min …reversal retest pattern > 1443.00 to start………VST 15 min OB >1450.50 /// VST OS < 1432.50
Daily Chart Focus Levels….prominent sell wicks forming in daily candlesticks but bears have not yet been able to convert finds footing against the 34-day SMA at 1427.00
SP1 Daily Resists ….….1444.00-1446.0….1453.00.…..1460.00-1461.00……1467.00….1475.00…..1478.00…………1492.00……………1506
SP1 Daily Supports….…1438.00-1436.00……..1427.00…….1419.50 ….. 1413.00 …. 1405….1401.00/ 1399…..1390.00…….1382.00
SP1 Daily OB >1478.00 /// SP1 Daily OS < 1343.00
Weekly Chart Technical Stance and Focus Levels….downgrade to positive < 1443.50 after momentum loss < 1453.50….inside range 1453.00 / 1433.00 tightens…outside range 1470 / 1411.00 for reversal
Monthly Chart Technical Stance and Focus Levels …..positive stance > 1405 but still avoiding strong positive > 1481; now on guard for a Oct lower high 1467.50 -1451.20 (to start) ….inside range 1481 / 1405 (1357) lifted….outside range 1533/ 1273
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