The S&P 500 And The Summertime Blues

Yesterday the major indices closed mixed. The Russell 2000 closed down 5.6 points at 1128.90 and the S&P (+1.40 points) and Dow (+26 points) made another round of new all-time highs while the Nasdaq finished down -5.4 on the day.

Summer comes early for the markets

Historically the summer months are the slowest of the year, but with the S&P (SNP:^GSPC) up as much as 189% from its March 2009 lows and up 20% from last year to today, no one is in a hurry to get long or buy stocks. The markets also tend to be much more choppy in the summer months.

Adding to that is the declining Russell 2000 that seems to be better connected to the slowing economy. I have always said that the U.S. stock market is being “supercharged” by the Fed’s continued quantitative easing/bond-buying programs and there is an idea out there that as the economy slows, so will the Fed’s taper process.

The continuation of the process will lead to higher rates and inflation, which will be a big setback for the economy and the markets as a whole.

These concerns haven’t caused the S&P and Dow to stop their relentless push higher, but they have resulted in unprecedented thin volume and low breadth, meaning fewer stocks are driving the advance, while more of them stagnate or drop. The party may not be over, but fewer people are out on the dance floor.

The Asian markets closed mostly higher and in Europe 9 out of 11 markets are trading lower. Today economic and earnings scheduled start with the motor vehicle sales number, Gallup US ECI, factory orders,, Kansas City Fed President Esther George speech on monetary policy in Breckenridge, Colo., and earnings from Dollar General  DG, Ambarella AMBA, and Ascena Retail Group ASNA.

S&P up 7 of the last 8 sessions

It doesn’t matter if it’s Mutual Fund Monday or Turnaround Tuesday, the S&P is going up. It has become so one-sided the short sellers have gone on vacation. That said, I really believe the E-mini S&P futures ESM will make a high this week.

Can it get stretched out to 1940 -1950? Sure it can, but I really think some type of pullback will occur this week.

Our view: With the S&P up so many days in a row, we lean to selling the rallies. Most of the buy stops have been hit and the downside stops are starting to build up again.

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

• In Asia, 7 of 11 markets closed higher: Shanghai Comp. -0.04%, Hang Seng +0.91%, Nikkei +0.66%.
• In Europe, 9 of 11 markets are trading lower: DAX -0.25%, FTSE -0.37% at 5:30 am CT
• Morning headline: “S&P 500 Seen Lower; Up 7 of the Last 8 Sessions”
• Fair value: S&P -1.89, Nasdaq -0.66, Dow -10.65
• Total volume: 1.05mil ESM and 5.4k SPM traded
• Economic calendar: Motor vehicle sales, Gallup US ECI, factory orders,, Kansas City Fed President Esther George speech on monetary policy in Breckenridge, Colo., and earnings from Dollar General  DG, Ambarella AMBA, and Ascena Retail Group ASNA.