MrTopStep Best of 2012: The Three E's: Expiration, Expectation & Earnings

By Eubie
This earnings season is kicking off right in front of expiration, a monthly, not a quad-witch, so earnings trump expiration this Friday … but how are expectations heading into both? We are certainly going to have both some high-level explosions to the upside and some sad faces post-reports.

Let's look back over the last EPS season as we ended 1QTR & 85% of SPX EPS reports in the two-week period following the quarter end. This past March ended the best QTR performance following the 2ND QTR end, losing near -10% from the highs and at one point in June we were only up 10 HANDLES YTD, testing the 1266 June lows and 10% off the April EPS highs. Have expectations been tempered? Are we set up for a “hangover” post-EPS reports? I can sit here and prognosticate with guessing what the reports will be … but the fourth “E” is EUBIE and I don't guess. Read the tape; do equity names rally ahead of EPS reports or are they declining in front of low expectations only to rally on less bad news? “REACTION vs/ ACTION” as I always say.

We have just run over +100 handles off the 1266 lows / +40 handles & +3% in the last 4 days off the 1320 trendline just this week! As well, we are -55 off the 1411 / 1415 weekly 2X top, some -3.8% from yearly highs three months ago today trading 1360. Prices haven't really been tempered yet considering that we are now +103 handles for 2012, +8% YTD, with volatility for everyone.

NIMBLE THE NAME, EARNINGS THE GAME!

S&P CASH STUDY FOR THE JULY EXPIRATION
DAILY STATS (For 28 July expirations, 1984-2011)

FULL REPORT

For today:

• It's 6:00 a.m. and the ESU is down 4.75 handles at 1353.75, crude is down 34 cents at 88.88 and the EC currency is trading 1.2235, down 62.
• In Asia 6 out of 11 markets closed modestly higher.
• In Europe 9 out of 13 markets are trading higher.
• The main headline this morning: “US Stocks Seen Lower as Bernanke Disappoints.”
• Today's economic calendar: MBA purchase apps, housing starts, Federal Reserve Chairman Ben Bernanke to speak before the House Financial Services Committee to give his semi-annual monetary policy testimony, EIA petroleum status report and the Beige Book.

• VOLUME: 1.97mil ESU and 8.2k SPU traded
• SPREADS:  390 SPU/Z spreads traded
• FAIR VALUE: S&P -4.00, Nasdaq -6.00

Closing Print Video: http://www.mrtopstep.com/videos/?id=21825

Tuesday's wrap-up from the S&P pit:

Fed Chairman Ben Bernanke and the committee stand ready to take more action if this global debt / economic “soft patch” continues. The Fed is gauging whether the economy is “stuck in the mud,” meaning “easing tools shouldn't be used lightly.” The lack of immediate gratification for the QE3 drummers sent the equities and risk-on crowd scrambling immediately following the release of his prepared testimony. Back in the real world, the 10yr and 30yr bond yields are threatening major support levels at 1.4% and 2.5% respectively. Chatter regarding the similarities in the price action between current conditions and the 1993 savings and loan crisis that led to further housing and economic woes. The stimuli eventually helped to lead to the tech bubble during the Y2K euphoria. …

Today's S&P 500 trade started with 190k ESU and 800 SPU traded on Globex, trading range 1355.00 – 1346.00 / Monday's range 1343.20 – 1352.00, settled 1347.40 down 4.3 handles. The RTH's opened 6.8  handles higher at 1354.00 – 1354.30, traded up to 1356.00 before breaching the opening range as traders awaited Fed Chairman Ben Bernanke's Humphrey Hawkins testimony.  Bernanke repeats Fed prepared to act and declined to specify steps – a direct repeat of the last testimony. The spoos spiked lower, 1352 area to 1347, then 1344.50 as Bernanke's testimony was released and held the 1348 area on the bounce. The bonds were trading near unch'd as while the spoos next leg took the index down to 1339.50 LOD at 9:45CT before reversing, stepping all the way back to retest the opening range by 11:05. EUBIE (09:46:24): BUY THESE 1340 area / Bollingers may BOUNCE EM'. Traders who trade the event need to be flexible in the current markets – as the price discovery takes no prisoners. Sell stops run sell programs and on the flop the trailing buy stops run the buy programs as the risk-on, quantitative easing drumbeat rolls on. By 11:35 the spoos were retesting, double top at the early morning high at 1356. After a short breach through the OR, 1353 area held and the next leg higher was underway as 1359.30 traded at 12:33. After a little pullback the SPU rallied up to a new high at 1360.50 and then sold off a few handles just before the 2:45 imbalance. The imbalance showed MOC buy 250mil. On the 3:00 cash close the SPU traded 1358.02 and settled at 1358.50, up 11.1  handles on the 3:15 futures close.

MTS video: George Dowd, of  Newedge http://www.mrtopstep.com/2012/07/7-17-2012-george-dowd/

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