S&P 500 Range-Bound

They say the trend is your friend. While the S&P 500 SPM may be going up, it has yet to really go anywhere in 2014. Every time it sells off the bears jump on the sell side, it sells off, and then stops. That’s what it did last Friday and that’s what it’s done all year. As of Friday’s close the S&P is up 1.63%, the Dow is up fractionally, 0.04%, while the NASDAQ Composite is down -2.51%.

Rotations

At some point the S&P will sell off, but until then it seems very range-bound. Whether you’re a bull or a bear, it’s always important to keep an eye on the overall price action of the S&P. Yes, the Russell and Nasdaq were weak, but it looked like the mutual funds were buying the Dow and S&P and selling the Nasdaq and Russell. As weak as the markets may have been acting, the Dow rose to a record close on Friday while at the same time the Nasdaq ended its worst week in a month.

Friday to Friday

If you get the feeling that the S&P isn’t going anywhere right now, you’re right. On Friday, May 2, the E-mini ESM settled at 1874.50, and last Friday, May 9, the ESM14 settled at 1873.50. After all the hundreds of handles of up and down, the S&P closed 1 handle (point) lower from the prior week. After all the thrashing, the S&P didn’t go anywhere.

Fridays, Mondays and Tuesdays

Clearly there are days when the S&P goes up, like Turnaround Tuesday, and there are days the S&P goes down. Recently Fridays have not been good; in fact, the S&P has closed lower 6 out of the last 8 Fridays while 9 of the 17 Mondays this year have closed higher, with the last 4 all up. But the big day this year has been Turnaround Tuesday; of the 18 Tuesdays so far this year 15 have closed higher and 3 have closed lower, with 5 of the last 6 closing higher.

The Asian markets majors closed sharply higher overnight (Shanghai Comp. +2.08% , Hang Seng +1.82%) after China’s Xi said that China must adapt to “new normal’ of slower growth, and in Europe 8 out of 12 markets are trading higher. This week’s economic calendar includes 20 separate economic releases, 9 T-bill or T-bond announcements or auctions and a whirlwind of Fed speak which includes 6 Federal Reserve governors and 2 appearances by Janet Yellen . Today’s economic schedule starts with the Gallup US Consumer Spending Measure, PMI Services index, ISM-Non-Mfg Index and earnings from McKesson Corporation (NYSE: MCK), NII Holdings (NASDAQ: NIHD), and Babcock & Wilcox BWC.

Our view

Our call was right on last Friday, as was the S&P cash study showing it being an up day. We are going to keep it simple; the S&P cash study shows the Monday of the May expiration as being up 21 / down 9 of the last 30 occasions and Tuesday shows a down day: up 12 / down 18 of the last 30 occasions. Overall Fridays have been down lately and Mondays have been up. We lean to selling the early rallies and buying weakness today.

As always please keep an eye on the 10-handle rule and please use stops when trading futures and options.

• In Asia, 6 of 11 markets closed higher: Shanghai Comp. +2.08%, Hang Seng +1.82%, Nikkei -0.35%.
• In Europe, 8 of 12 markets are trading higher: DAX +0.91%, FTSE +0.42%
• Morning headline: “S&P 500 futures seen higher ahead of PMI and ISM index releases”
• Fair value: S&P -4.17, Nasdaq -4.85 , Dow -47.93
• Total volume: 1.47mil ESM and 3.8K SPM traded
• Economic and earnings calendar: Gallup US Consumer Spending Measure, PMI Services index, ISM-Non-Mfg Index and earnings from McKesson Corp., NII Holdings and Babcock & Wilcox.