Stocks At New High Again, Bears Quiet

The S&P 500 futures charged to another new all-time high Tuesday. The S&P futures SPM rallied over the 3-day Memorial Day holiday and traded up to and closed at another new, all-time record high and record close.

Several factors combined after the holiday: extremely low volume, the S&P stalling at index arbitrage buy program levels, and stops above those levels to push prices higher.

Holiday volumes to stay

If you believe volume matters then you should pay attention to this essential information.

In one day in 2009, the S&P futures SPM reached its all-time highest volume of 6.69 million contracts. For the guys on the floor it was unbelievable. Desks that never did any business were busting out at the seams and the desks that did were printing money.

Five years later, volume is a fraction of what it was then. The average volume in the E-mini ESM was 2 million contracts a day in 2013 and has dropped to 1.5 million a day on average. My own numbers show total volume is lower not just in the futures markets, but stocks as well. How low? Last Friday’s daily trading volume on the SPDR S&P 500 (SPY) was the lowest since Christmas Eve, 2013. It was just a few weeks ago that the major part of the selling was in the Nasdaq and now those stocks are ripping higher.

The stock market has had analysts (including MrTopStep) writing the words, “new all-time high” so many times that even bearish market timers have given up calling for a correction. More on that below.

It’s ironic that the financial crisis was caused in part by people believing the myth that housing prices would go up indefinitely. While few people think stocks will go up indefinitely, there is a growing consensus that we’re in a new normal and part of that is extended long-term rallies.

We’ve seen such extended moves in daily and weekly time frames. The S&P has been up 5 days in a row and it’s hardly news anymore. It makes sense that the buy programs would act on a monthly and yearly scale as well. This raises the question: When the correction comes, will the algos make it drop harder and further?

10 out of 11 Asian markets closed higher and 9 of 12 European markets are trading higher. Today’s economic and earnings schedule starts out with MBA purchase applications, Redbook, 5-yr note auction and earnings from Bank of Montreal BMO, Michael Kors KORS, Toll Brothers TOL.

Our view: S&P Melt Up

The S&P is in a “meltup” phase. The VIX closed up 15 or +1.32%. This morning the world markets are all pressing higher. At 5:45 am the E-mini S&P futures ESM is up 4.25 handles at 1913.50, on the high.

At the end of the day each trader must decide which way he or she thinks the markets are going. For me, it’s simple; nothing has changed. For the last two years the market timers, from Robert Prechter of Elliott Wave to Tom DeMark to Dennis Gartman, have all cried wolf. I would not pay a dime for any of their services because they have been wrong so many times.

Additionally and maybe even more important is that by taking one of their “sells” on the way up you not only lost on the short sales but you also lost the direction. It’s hard enough buying the markets when they are up so much but it’s even harder to reverse from a short to a long.

The most basic principle of the markets is the trend. The S&P has not had a 200- or 300-handle selloff; 50 to 80 handles is considered an extreme pullback. You can read and talk to all the people you like but it all comes down to two things: 1) historically low rates and 2) the Fed is still providing liquidity through its bond buying programs. We live in an environment of no place to go but stocks and big money knows it.

The Memorial day holiday is over and while the markets are acting great and charging higher I think they run out of gas going into Thursday and Friday and possibly even today. The bus is getting too full but that doesn’t mean it can’t keep going up. It just increases the risk of the pullback.

The skillful trader will avoid holding onto a bullish or bearish bias today and be willing to pivot. The S&P has been up 6 of the last 8 days but one of the losing days was less than a full handle. You take it from there..

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

• In Asia, 10 of 11 markets closed higher: Shanghai Comp. +0.77%, Hang Seng +0.59%, Nikkei +0.24%.
• In Europe, 12 of 12 markets are trading higher: DAX +0.09%, FTSE +0.02%
• Morning headline: “Global markets push higher; Nasdaq approaches 13 year high”
• Fair value: S&P -2.38, Nasdaq -1.28, Dow -20.19
• Total volume: LOW 920k ESM and 3.3k SPM traded
• Economic calendar: MBA purchase applications, Redbook, 5-year note auction and earnings from Bank of Montreal BMO, Michael Kors KORS, Toll Brothers TOL
  • E-mini S&P 5001909.00-0.25 - -0.01%
  • Crude102.15+0.02 - +0.02%
  • Shanghai Composite0.00N/A - N/A
  • Hang Seng23080.029+135.729 - +0.59%
  • Nikkei 22514670.95+34.431 - +0.24%
  • DAX9939.17-1.65 - -0.02%
  • FTSE 1006851.22+6.28 - +0.09%
  • Euro1.359