Market Overview

Hump Day


Since late last week, we have been posting Morgan Stanley advertising an equity sell side quarterly imbalance. As the equities have approached and marked multiyear highs, US corporations have been announcing news / deals into the close of the first quarter. There have been a number of mergers and acquisitions, share buybacks and dividend announcements supporting underlying positives regarding valuations. However, the economic data has not been supportive of the expanding growth scenario that the bulls are hoping for. The fundamentals may be supportive, but currently they are not showing much in the way of continued global expansion. Traders are trying to shake off disappointing eurozone growth, US durable goods, housing data, consumer confidence and weak regional manufacturing data as consumers digest the past month's spike in gasoline prices to a national average near $4 a gallon. Last week Chicago area prices set a new record high of $4.70ish even as yesterday's crude / gasoline inventory stockpiles were significantly higher than anticipated, sending prices sharply lower – excluding prices at the pump, which will lead to pressure on the consumers / retail sales.

Wednesday's trade started with 276k ESM and 1.2k SPM traded on Globex as durable goods and new orders came in slightly lower than expected. The RTH opening range was slightly higher, 1406.50 to 1407.20, and topped out at 1408.70 HOD (globex high 1412.25) before printing 1404 and lower. Going into 9:30CT an index arb sell program pushed the SPM down to new lows at 1401. MTS 9:31buy program at 9:00 / sell program at 9:30, say hello to the quarter end. Just after the low the SPM popped back up to 1403.50, sold back off down to 1401.50, bounced a bit and then fell apart. Before they did, we posted  sell stops under 1401 down to 1397 with 1396 as support and the SPM cratered right through that objective all the way down to 1393 – 20 handles off the Globex high. Then the spoos rallied up to 1397, at 12:20 total volume was 1.27 mil ESM traded – 276k from Globex = just under 1M ESM and 2.8k SPM traded on the day session. After a brief rally, the SPM headed back down to a printed 1392.10 LOD and was back up trading 1396.50 at 1:54. After another little selloff, the SPM rallied back up to 1398.50, pulled back and then rallied up to 1399.20. At 2:45, 28 of the Dow 30 were to buy, MOC showed buy $1.1bil. On the 3:00 cash close the SPM traded 1400.37 and settled at 1400.20, down six handles on the 3:15 futures close.

EUBIENOMICS: if we were to come anywhere near 1382.60′s (last THURS & FRI lows) this week / would be NEGATIVE OUTSIDE WEEK DEVELOPING with the 1415.50 HIGH THIS WEEK / just a thought underneath us into QTR END.


Volume 2, Issue 297
Thursday, March 29, 2012


The markets never do what you want them to do. They go up when you want them to go down and they go down when you want them to go up. Sometimes there are clues to why a market moves in one direction, and the big one for the stock market right now is that “free money” is flowing out of bonds and into stocks. The risk-on trade has the S&P up 12% in just 14 weeks and up over 30% since the October 2011 lows. So, what will it take to slow the bull? Further problems within the eurozone? A slowdown in the jobs numbers? We think the latter, but the clue to what the markets will be reacting to over the next two days has already been well advertised: the quarterly rebalance numbers. Last week JP Morgan said they have over $30bil in equities to sell and over $20bil in fixed income to buy. Last week when the numbers were released the SPM sold off and then promptly rallied 35 handles in two days. So is the weakness real? Marty “The “Pit Bull” Schwartz said yesterday that with the lack of returns over the last few years and the S&P up 12% so far this year it makes sense for the funds to take some profits. Yesterday: Per GS: Equities have outperformed U.S. T-notes by +14.35% this quarter. As of close on March 21, our model estimates net -$42.07bn in selling from pension rebalancers, with -$31.62bn of this from calendar-based flow (quarterly & monthly rebalancing). · For the quarter, equities outperformed fixed income by +14.35%. As a result, quarterly rebalancing flow estimates -$23.00bn in equity selling.  Also, over the month of March, the S&P 500 outperformed U.S. T-notes by +5.61%. This resulted in monthly estimated rebalancing flow of -$8.62bn out of equities. Lastly, we saw one “trigger” event in the month of March 13(Mar12), which we estimate totaled -$10.45bn in equities sold post event. Now we all know there is a buyer for every seller, but if JP Morgan has the same sell equities / buy fixed income agenda, it probably means Credit Suisse, UBS and many of the other big firms do too.

Conclusion: The S&P is enjoying its best quarterly gain in 14 years, but there is also a big two-way trade going on as the mutual / investment funds start to take some profits. This selling has helped push the premium levels between the S&P futures and the S&P cash into sell program levels, in turn pushing the futures lower as it presses into sell stops. It's our view that this type of price action will persist right into the last trading day of March. As always, keep an eye on the 10 handle rule and please use stops.

The view for today:

It's 5:30 am and the SPM is down 5.4 handles at 1394.80, crude is down 61 cents at 104.80 and the EC is trading 1.3285, down 43.

In Asia 8 out of 11 markets closed lower.
In Europe 12 out of 13 markets are trading lower (DAX down 1.10%, CAC down 1.01%)
The main headline this morning: “World Stocks Drop as US Economic Data Disappoints.”
Today's economic and earnings calendar: GDP, jobless claims, corporate profits, Fed's Plosser speaks, 7-yr note auction, farm prices, Fed's Lacker speaks; earnings from Best Buy, Research in Motion.

VOLUME:  1.75mil ESM and 7.5k SPM traded

SPREADS:  122 SPM/SPZ spread traded
FV: S&P -4.90 , NASDAQ -5.30

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by copyright 2012

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MrTopStep & Benzinga Wednesday WrapUp Radio:









Roger Volz, BGC

We noted that end of month / end of quarter l T+3 is in play, then bears may have a chance to play wants fund purchases has run their course. SP 500 futures daily chart found its next resistance ledge at 1419.75, leaves charts in line with an inside closing range of 1412.00 to 1404.00 ND 100 futures makes retest of yesterday's high 2789 with 2788 high pass with multiple time frame convergences above from 2796-2802-2806.  Pattern wise we're noting a lower high double top forming now in DJIA (13289-13264) another in a myriad of topping attempts.  Daily Chart Levels for Today SP1 Inside Range tightens into Q end 1404 / 1412, Outside Range  1395/ 1419.75ND1  retesting yesterday's high 2789, bigger ledge above 2800s with D/W/M gathering around => Inside Range 2763 / 2802, Outside Range 2745/ 2806

SP 500 Futures 15 min Chart: corrects very short term oversold issued into close sub 1406.50 in 15 min  and 1405.75 in shorter 5 min. Rebound stalls below mid day ledge above 1412.00 leaves prospect for a lower low needed for the next level of technical extremes   inintial Resistance: 1410.70, 1411.75, 1412.50, 1414.00-1414.50 (1419.75 D)Initial Support concentrations: 1405.90-1405, 1402.00, 1400.50-1399.75First VST OB > 1416.00 ; VST OS > 1402.50


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