Global Conflict Affecting The Markets

The Russians and ISIS are coming, along with a host of others… with the Dow and S&P closing at another new all-time high, many traders we talk to think the S&P could be setting up for a quick jolt lower.

As technical analysts, we rely on trend lines and moving averages. But markets are also moved by global concerns. When President Obama started pulling out of Iraq in 2009, the U.S. stock market was setting up for one of the fastest and largest bounces in its history.

After a 190% bounce in the S&P SPU it’s not rates or the Fed taper that are worrying the markets; it’s the inability of the Iraqi armed forces to stand up to ISIS and a big pickup in attacks by Al Qaeda in Afghanistan and Pakistan. If crude oil rises sharply the S&P will weaken, but energy prices will not be the only reason.

The Middle East seems to be going up in flames, while Eastern Europe remains in turmoil, and and it doesn’t seem like the U.S. government wants to throw its hat in the ring this time. Many applaud Obama’s nuanced approach, sending only 300 advisors. It is a stark contrast to the previous administration.

Doing nothing—or appearing to—creates more short-term uncertainty, but does that mean the S&P will actually go down? The answer is yes, the S&P can and will sell off if crude trades sharply higher, but will it stay down? I don’t think it will.

As we’ve said many times, the S&P and thus the entire stock market have a way of turning any news into a reason to rally. Even recovering from the initial shock of bad news seems to put the S&P into a rallying mood.

Unlike last week, there is going to be a pickup in economic reports both in the U.S. and Europe at the same time more families are going on vacations and cutting back from trading.

The Asian markets closed mostly lower (Hang Seng -1.68%) and in Europe 9 out of 12 markets are down. This week’s economic schedule picks up slightly from last week’s; there are 21 economic releases, 12 T-bill or T-bond announcements or auctions, and no Fed speak. Today’s economic schedule starts with the the Chicago Fed National Activity Index, PMI Manufacturing Index, existing home sales, 3- and 6-month T-bill auction and earnings from Micron Technology (NASDAQ: MU) and Sonic Corp. (NASDAQ: SONC).

S&P futures up 14 of the last 16, up 6 in a row

Out with the June Quad Witch and in with the June Q2 rebalance. My gut tells me the E-mini S&P ESU can go a little higher from here but that we are getting close to some type of pullback.

I predict that summer trading volume in the ESU14 (including Globex volume) will drop to 750,000 contracts a day. Once the markets get past the end of June, July will be a catastrophe as more and more families go on vacation in the U.S. and Europe.

June Quad Witch Out, June Quarterly Rebalance In

As always, please make sure to use protective stops when trading futures…

• In Asia, 8 of 11 markets closed lower: Shanghai Comp. -0.11%, Hang Seng -1.68%, Nikkei +0.13%.
• In Europe, 9 of 12 markets are trading lower: DAX -0.41% , FTSE -0.27%
• Morning headline: “S&P seen higher as ISIS spreads regional fears”
• Fair value: S&P-8.57 , NASDAQ -9.54 , Dow Jones -85.41
• Total volume: 1.15mil ESU and 2.2k SPU traded
• Economic calendar: Chicago Fed National Activity Index, PMI Manufacturing Index, existing home sales, 3- and 6-month T-bill auction and earnings from Micron Technology MU and Sonic Corp. SONC.