Stocks Rise, Gold Falls On Upbeat Data; New Highs Likely

The S&P rallied in the face of potential higher interest rates on Thursday. After the big selloff in the S&P futures during Wednesday afternoon’s Fed announcement and the subsequent bounce, the S&P came in lower during yesterday’s open and rallied most of the day. At the end of the day the Dow Jones Industrial Average gained 108.88 points, or 0.7%, to 16331.05. The S&P 500 [CME:SPM14] advanced 11.24 points, or 0.6%, taking back Wednesday’s -0.60% loss, the Nasdaq Composite Index gained 11.68 points, or 0.3%, to 4319.29.

The news was centered around worries that the Federal Reserve may increase interest rates sooner than expected, a boost in factory activity after the weather related weakness, the Fed’s bank stress test results showing 29 of 30 big banks could weather a big shock and President Obama enacting fresh penalties on Russia for annexing Crimea. Lastly the S&P’s resilience itself was news, as it showed little to no weakness in the face of uncertainty.

Back to UNCHED

As the stock market enters the sixth year of the bull market there has been a tug of war going on. Despite the popular idea that the fed tapers would have a negative effect, as of yesterday’s close the S&P is up 178% from its 12-year low. The next upside levels we are looking at are the 1886 level and the the 1904 level.

It has become a popular sport to try and pin this bull market on some specific macroeconomic factor or factors. Is it the rise of China, India, and the emerging markets? Is it the renewed strength of the US auto industry? Is it the tech sector? Is it because of or in spite of Barack Obama being president?

As always, there are some—probably not most, but some—who freely admit they don’t know and in fact, don’t care to know. Some of us keep an eye on the news just to know what the herd might be reacting to, so we don’t get surprised or trampled by sudden moves. We trade crude oil based on the trend, not on what Vladimir Putin may or may not do and how that may or may not cause others to do things that may or may not…it’s exhausting.

Speculation doesn’t necessarily mean idle speculation. The difference between traders and analysts is where their money is. For analysts, the money comes from the paycheck you get. Some of the most highly-paid analysts on TV and elsewhere are wrong most of the time. Frankly, they couldn’t trade if their lives depended on it.

Traders…well, our livelihoods do depend on it. As citizens, we are concerned about the economy, about unrest in Crimea, about 1 in 6 Americans facing hunger at some point this year, about jobs. But as traders, our bottom line is the bottom line.

So when we here at MrTopStep talk about the news, it isn’t to get you to trade the news, but to know how those who do trade the news (both the humans and the news algos) may behave, so you can make wise decisions. And make money.

Russian Bond Dump

Here’s one last bit of news to think about (or not) this morning. Russia is claiming to have dumped US bondsin retalation for US sanctions and says they were doing it long before President Obama’s sanction address. Their calls for the world to follow their lead and dump US Treasuries may be financial saber-rattling. But the main issue is whether Russia can afford to support Crimea, which is poor in resources and manufacturing and will likely drain the Russian treasury, not add to it.

The Asian majors closed mostly higher and in Europe 7 of 11 markets are trading modestly higher. Today’s economic calendar starts with the Atlanta Fed Business Inflation Expectations, St Louis Federal Reserve Bank President James Bullard speech on nominal GDP, in Washington, Minneapolis Federal Reserve Bank President Narayana Kocherlakota and Bank of England Exec. Director Spencer Dale on panel in Washington, Federal Reserve Gov. Jeremy Stein’s speech to International Research Forum on Monetary Policy, in Washington. It’s been a long week and despite all the ups and downs the S&P is only about 10 handles off its all-time contract high.

Our View

The MiM has been hot lately. While the S&P was selling off the MiM was going up. After selling off down to 1861 late in the day the S&P went ripping back up in the final minutes of the day. As of yesterday’s high the S&P has rallied over 45 handles from its 1823 Globex low last Sunday night. Lets face the facts: the S&P has been taking bad news and making good of it again.

Based on yesterday’s overall prices action and late pop we think there is a very good possibility the ESM14 makes new highs today. Yesterday the positive S&P cash stats were right on: up 22 down 7 of the last 29 and today has been up 16 / down 13 of the last 29 occasions. The Stock Traders Almanac says the March Triple Witching day is “mixed” the last 12 years but down 4 out of the last 5 and the week after has the Dow down 17 of the last 26 occasions, up 4.9$ in 2002, up 3.1% in 2007, up 6.8% in 2009, up 3.1% in 2011 or up 6 out of the last 10.

Our view is we think the S&P is going up. There is a big line of buy stops that start above 1869 all the way up to 1876. Will the S&P dipsy doodle ? Sure it will. After the first two hours it should slow until the afternoon and with the roll out of the way we will get a real look at what the volumes are, it’s my guess they are going to be low.

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

March expiration study: http://mrtopstep.com/march-expiration-study/

• In Asia, 9 of 12 markets closed higher: Shanghai Comp. +2.72%, Hang Seng +1.20%, Nikkei -1.65%
• In Europe 7 of 11 markets are trading trading : DAX +0.43%, FTSE +0.55%
• Morning headline: “Stocks rise, gold falls, on upbeat data to end week”
• S&P Fair Value:1864.21 (futures 6.29 higher at 1870.5 as of 6:04AM CT)
• Total volume: 1.67mil ESM and 14.8K SPH and SPM (7.9K) traded
• Economic calendar: Atlanta Fed Business Inflation Expectations, James Bullard speaks