Worst week for the S&P since June 21; what comes next?

By: Danny Riley

Weeks before talk started about a Hindenburg omen, the Pit Bull told me a lot of the market-leading stocks were “well off their highs.” The last time I heard him say something like that was at the onset of the credit crisis in 2007.

Meltdown, economic tsunami, Hindenburg are just a few of the names given to past and future stock market crashes, but many feel this time could be different. After spending billions to support the economy and the markets, the end is in sight, or is it? Is it that easy? Let the markets fall and then turn on the spigot again? Where is the PPT (“Plunge Protection Team”) in all this? The Working Group on Financial Markets was created in 1987 to prevent another crash. Then again, the group, including the treasury secretary, Fed chairman, and SEC and CFTC heads, wasn’t able to stop the 2007 credit crisis.

While talk of an impending stock market crash runs rampant, my question is, what will happen after the selloff? We know the bears are licking their chops. Some of the best-knownmarket timers are beating their downside drums again. While the Federal Reserve has been quiet over the last few weeks, the minutes from the last meeting could spark a response to the markets. The question is, in what direction?

While the next official Fed meeting is not until mid-September, right in the middle of the September quadruple witching, Fed watchers will be tearing apart the August FOMC minutes this Wednesday for any clues of when and how the Fed could start to wind down the $85 billion-a-month bond purchases. Fed Chairman Bernanke will not attend this Thursday’s annual Kansas City Fed meeting in Jackson Hole, but many other Fed officials will and are bound to continue to express their views on Fed policy.

Today’s economic calendar has no scheduled reports, with only a few Tuesday and Wednesday morning. Thursday, however, has 9 economic reports, 5 T-bill or T-note announcements, the Fed minutes and Richard Fisher speaking.

We think the S&P is going to bounce today and continue down during the rest of the week. We lean to buying weakness. The markets can run but not hide from the Fed.

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

Lastly, please find an hour to look at the Pit Bull speaking at Amherst College. He has been my friend for a long time but I still love hearing him talk. “A Market Wizard Speaks: Marty Schwartz speaks at Amherst College, Spring 2013.” At Marty’s request, we are offering the full video free of charge to you and the world. Few people trade as well as Marty does. Even fewer are willing to share what they’ve learned.   http://mrtopstep.com/marty-schwartz-speaks-at-amherst-college-spring-2013/

• In Asia, 8 out of 11 markets closed lower (Shanghai Comp. +0.83%, Hang Seng -0.24%, Nikkei +0.79%).

• In Europe, 11 out of 12 markets are trading lower (DAX -0.27%, FTSE -0.40%).

• Morning headline: Stock futures flat after large weekly loss

• Total volume: 1.73mil ESU and 8.5k SPU traded

• Economic calendar: None

• MrTopStep Closing Print Video: http://mrtopstep.com/2013/08/mrtopstep-mid-morning-update-08-16-2013/

• E-mini S&P (Sep)1654.25+3.25 - +0.20%
• Crude106.37-0.12 - -0.11%
• Shanghai Composite2085.602+17.15 - +0.83%
• Hang Seng22463.699-54.111 - -0.24%
• Nikkei 22513758.13+108.02 - +0.79%
• DAX8364.95-26.99 - -0.32%
• FTSE 1006467.55-32.44 - -0.50%
• Euro1.335

 

Danny Riley has worked in the futures and options industry for 33 years, beginning in 1979 as a runner in the Chicago Board of Trade grain room. He then moved into the CBOT’s bond room, where he worked for several traders in Market Wizards No.1. Riley then moved to the Chicago Mercantile Exchange’s S&P 500 pit, where he went on to build the single largest volume desk in the index. Riley’s S&P operation handles some of the largest accounts in the business, including some of the largest bank and hedge fund trading desks in the business. For nearly 10 years Riley did all the UBS program trading business, and is considered an expert in the field of program and algorithm trading. Riley has been part of every major stock market event since 1985.