Market Overview

Uncertainty Prevails: Chop City In The S&P

The S&P futures go up and the S&P futures go down. In good times and in bad times the S&P is always moving. Recently that up-and-down price action has been about one thing and one thing only: uncertainty.
We have already written about how the S&P 500 futures are being affected by the lack of a deal over the fiscal cliff. Almost three weeks ago we started pointing out the congressional calendar showing how Congress is scheduled to break on Dec. 14 and not reconvene until the New Year. Since President Obama's re-election the S&P has been on a roller coaster. Initially it sold off, then we saw a rally and now another selloff. After being up 5 days in a row, the ESZ (S&P 500 mini) closed lower Wednesday after a late-day comeback and tried to do the same late yesterday, but it did not work as the future traded back down to the lows on the close even after it hit the tape that Boehner was going to be meeting at the White House.

We have seen this act before: Over the last few years there have been several times when indecision has caused this type of up-and-down price action. After the drop the S&P bases, back and fills and goes back up again. While we all know about the end-of-year markup, the Santa Claus rally and the January effect, we feel the new year may bring some type of early pullback. For now the Federal Reserve ended its last policy meeting of 2012 vowing to continue its stimulus programs, using $85bil a month in mortgage-backed securities. Monetary policy can only go so far, and fiscal policy is still teetering on the cliff's edge.

Preoccupied at home: For now the focus of the S&P is at home in the U.S. and the fiscal cliff. When the new year starts, the focus will move back to Europe and its ongoing debt problems. Yesterday the S&P downgraded its outlook on the U.K.'s credit rating. With tax rates set to rise in 2013, the stock market may start off on a negative note. We do not see a repeat of last year's big first-quarter run-up.
The S&P futures have closed higher 5 out of the last 7 days.

Wednesday, Dec. 5 SPZ +2.8 handles (1397.00 low)
Thursday, Dec. 6 SPZ +4.7 handles
Friday, Dec. 7 SPZ +3.0 handles

Monday, Dec.10 SPZ +4.2 handles
Tuesday, Dec. 11 SPZ +11.3 handles
Wednesday, Dec.12 SPZ -4.3 handles
Thursday, Dec.13 SPZ -9.10

Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

Our view:
If this were easy we would all be retired. … As we said yesterday, we are still looking for the Pit Bull Thursday/ Friday low the week before the expiration. We do not know if that low was yesterday or if there is going to be another leg down this morning, but that's what we are playing for. According the Ned Davis S&P cash study, today has been up 19 / down 9 of the last 27 occasions. We are leaving it at that. As always, keep an eye on the 10-handle rule and make sure you're always using stops when trading futures.

 

  • It's 7 a.m. and the ESZ is trading 1420.75, up 2.75 handles; crude is up 89 cents at 86.78; and the euro is down 2 pips at 1.3075.
  • In Asia 6 out of 11 markets closed higher (Shanghai Comp. +4.32%, Hang Seng +0.71%).
  • In Europe 6 out of 11 markets quoted are trading higher (CAC -.10%, DAX -0.29%).
  • Today's headline: “S&P 500 Futures Set to Open Higher.”
  • Economic calendar: Today: CPI, industrial production, Facebook lockup lifts
  • Globex volume:  1.95mil ESZ, 970k ESH and 37k SPZ and 32k SPH traded
  • Fair value: S&P +2.25, NASDAQ -2


MrTopStep Closing Print Video: http://www.mrtopstep.com/closing-print-12-13-2012/
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