Indices Take A Breather As Oil Nears $54.50 A Barrel

Last Day Of The Month

• Gold Inches Higher

• Crude Oil Nears $54.50, Brent Trades Above $60.00

• Dollar Trades Lower In Front Of Fed Meeting

• Government Bonds Advance

It should not be a surprise to anyone that, after Friday’s big tech rally, the S&P 500 futures (ESZ17:CME) sold off yesterday. After making a 2580.75 high, and settling at 2557.50 on Friday’s close, the ES sold off down to 2571.75 on Globex early Monday morning. On the 8:30 CT futures open, the ES traded 2572.50, down 5 handles, made an early low at 2571.25 a few minutes after the open, and then rallied above the vwap at 2575.25. From there, the ES pulled back below the vwap, down to 2573.00, and then went back up to make its daily high of 2577.50 at 10:00 CT. That’s when the sell programs started to hit, pushing the ES initially down to 2567.50, before rallying back up to 2570.50, and then selling off again down to its low for the day at 2565.50. After that, the futures came back to double top at 2571.00, and then sold back off down to 2566.75 at 2:25 CT, as the MiM went from $165 million for sale, to Sell $522 million.

The weakness was a combination of an ‘extremely’ overbought S&P, and a slew of analysts stock downgrades, with health-care companies and retailers bearing the brunt of the selling. Macy’s closed down .85 cents, or -4.3%, to 18.84, and J.C. Penney was down .25 cents, or -8%, to $2.87. Citigroup (NYSE:C) analysts changed their ratings for both stocks to ‘SELL’ from ‘NEUTRAL’, and Nordstrom (NYSE:JWN) and Kohl’s both lost more than 2%. Morgan Stanley (NYSE:MS) and Barclays (LON:BARC) cut their ratings for drugmaker stocks, and Merck (NYSE:MRK) was down over 6% following Friday’s loss when the company posted a third-quarter loss due to weak sales, and warned about weak fourth quarter earnings.

Choppy Day

You could tell the overall price action was weak. Despite a few good short covering rallies, the ES was under selling pressure all day. The volume was not bad, but considering all the the selloffs, it just wasn’t that high at the end of the day. As I said in yesterday’s call, the ES was ‘clearly overbought’, and that’s the way it traded. In the end S&P 500 futures (ESZ17:CME) settled at 2568.25, down -10.25 handles, or -0.39%; the Dow Jones futures (YMZ17:CBT) settled at 23291, down -81 points, or -0.34%; the Nasdaq 100 futures (NQZ17:CME) settled at 6224.25, up +9.00 points, or +0.14%; and the Russell 2000 (RTYZ17:CME) settled at 1493.10, down -14.90 points or -0.99% on the day.

While You Were Sleeping

Stock Trade Higher Overnight

Overnight, equity markets in Asia traded mixed, with a slight bias to upside, led by the Shenzhen Index, which closed up +0.50%. Meanwhile, in Europe, stocks are also trading higher this morning as investors await more earnings announcements, and whispers from the fed.

In the U.S., the S&P 500 futures opened last night’s globex session at 2568.00, and was able to spread its wings a little with a 7 handle trading range. The low at 2566.75 was made at 7:30pm CT, and was followed by a steady really up to 2573.75. The ES is currently trading on its highs, and as of 7:15am CT, the last print is 2573.00, up +4.75 handles, with 74k contracts traded.

In Asia, 6 out of 11 markets closed higher (Shanghai +0.12%), and in Europe 10 out of 12 markets are trading higher this morning (FTSE +0.13%).

Today’s economic calendar includes Employment Cost Index (8:30 a.m. ET), Redbook (8:55 a.m. ET), S&P Corelogic Case-Shiller HPI (9:00 a.m. ET), Chicago PMI (9:45 a.m. ET), Consumer Confidence (10:00 a.m. ET), State Street Investor Confidence Index (10:00 a.m. ET) and earnings from Aetna (NYSE:AET) (6:00 a.m. ET), GGP 6:30 a.m. ET), Carlyle (6:45 a.m. ET), Pfizer (NYSE:PFE) (6:45 a.m. ET), Mastercard (6:45 a.m. ET), Under Armour (7:00 a.m. ET), Archer Daniels Midland (7:00 a.m. ET), Cummins (NYSE:CMI) (7:30 a.m. ET), Kellogg (8:00 a.m. ET), HCA (8:30 a.m. ET), Electronic Arts (NASDAQ:EA) (4:05 p.m. ET).

Our View

Is the great pumpkin really here? I doubt it, but like I said after friday’s upside smoke job, you should not be surprised at yesterday’s weakness. That said, we have seen a lot of up a day / down a day price action, and I think there is more to come. It’s also another week of big economic reports and earnings. Our view is that today is the last trading day of October, and we can’t rule out further weakness. Buy the early weakness, look for a pop, and then see how the ES acts. There could be some end of the month buying around, but you won’t know until late in the day.

Top Notch Trading

• In Asia 6 out of 11 markets closed higher: Shanghai Comp +0.12%, Hang Seng -0.32%, Nikkei -0.01%
• In Europe 10 out of 12 markets are trading higher: CAC +0.17%, DAX UNCH, FTSE +0.13%
• Fair Value: S&P -2.77, NASDAQ -0.52, Dow -58-87
• Total Volume: 1.2mil ESZ & 512 SPZ traded in the pit

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