The S&P 500 [SNP:^GSPC] closed out the day with minor losses as the NASDAQ Composite closed at its lowest level in seven weeks, down 22 points or -0.50%, to 4151, its lowest close since Feb. 10. Investors have been relentlessly selling the “four-letter” stocks all week and they continue to lean on the technology and biotech stocks.
Drop & Pop
The ESM14 rallied 4 handles after the 8:30 open but immediately got hit by a big index arbitrage sell program pushing the futures all the way down to 1834. The S&P was starting out the way it had closed on Wednesday. It went down, but as quickly as the index sold off, it went back up even faster.
From its low at 1834 at 8:50 to its 1848 high, it took a total of 35 minutes. For the next two hours, sell programs reversed those gains. The index futures [CME:SPM14] were back down to 1835 before noon.
Earning start April 8
Consensus forecasts see earnings generated by companies in the Standard & Poor’s 500 index expanding 10.6% in 2014 to a new record high of almost $120 per share, a big improvement over 2013, which is on track for a 4%-5% gain. Tobias Levkovich, chief U.S. equities strategist at Citigroup’s CitiResearch, says, “There could be double-digit profit growth in 2014, but at this point, it looks like a bit of a stretch to get there,”
The official start of the 1st quarter of 2014 earnings is when Alcoa Inc (NYSE:AA) releases its financial results. Alcoa is starting the year in great shape, up almost 13% on the year. The earnings season starts in earnest on April 8 and we will see how stocks fared in the first quarter.
The Asian markets closed mostly higher and in Europe 11 of 12 markets are trading higher. On today’s economic calendar are personal income and outlays, consumer sentiment and Kansas City Fed President Esther George’s speech on the economy in Kansas City.
Our view
Like it or not, the Emini S&P [CME:ESM14] was “back-and-filling” at the 1836-1838 level after the big run-up and selloff yesterday. There were several attempts to take out the low, but every push resulted in a rally back up to 1841. Despite the $800 million for sale, the ESM actually rallied up to 1843 on the close before selling off down to 1840 and settling at 1840.60, down 2 handles on the day. We think the problem for the bears is the same old thing … after the S&P sells off, it rallies.
There are two days left in the quarter and there have not been that many 6-day declines in the S&P, let alone 7-day declines. My gut is telling me the markets are not that healthy, but after so many down days and with so many stops above, we think the S&P may try and go back up today and close higher.
As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.
- In Asia, 9 of 11 markets closed higher: Shanghai Comp. -0.24%, Hang Seng +1.06%, Nikkei +0.50%
- In Europe, 11 of 12 markets are trading higher : DAX +0.93%, FTSE +0.29%
- Morning headline: “S&P 500 futures seen higher ahead of Consumer Sentiment and Personal Income numbers”
- S&P Fair Value: 1841.44 (futures 3.81 higher at 1845.25 as of 6:34AM CT)
- Total volume: 2mil ESM and 5.6K SPM traded
- E-mini S&P 500 1881.75+8.00 - +0.43%
- Crude 98.55-0.22 - -0.22%
- Shanghai Composite 0.00N/A - N/A
- Hang Seng 22065.529+231.08 - +1.06%
- Nikkei 225 14696.03+73.141 - +0.50%
- DAX 9587.19+135.98 - +1.44%
- FTSE 100 6615.58+27.26 - +0.41%
- Euro 1.3752
