Stocks Still Thin to Win

Patterns will always be part of the S&P 500 futures E-mini (ES)) and, really, any financial chart. Noticing these patterns can help when trading but once the public notices them they generally don’t last very long.

When Turnaround Tuesday became one of the best up days of the week, after a few months it was taken out by the return of Mutual Fund Monday which has been up 7 of the last 8 Mondays.

Stats and More Stats

I have said many times that I have never seen anything like the current up move and our friend Marty “PitBull” Schwartz, one of the original “Market Wizards,” agrees.

Part of it is the relentless move to the upside but the other and more scary part is how low the volumes in the E-mini (CME:ESM14) have gotten. While the CME says the average volume in the ES was 2 million contracts a day in 2013 and down to 1.5 million in 2014, I don’t see that. In fact the ESM14 is barely doing 1 million contracts a day including pre-market Globex volumes.

I told the PitBull yesterday that I think by mid-July the total volume in the ES will drop to 750,000 a day. This is a far cry from the CMEs all-time volume of 6.69 million E-minis traded in one day at the height of the credit crisis.

Up-Days

No matter how you look at it or count, it the S&P is going up. I could go back further and add to the positive stats, but the last 18 trading days are enough. As of this morning’s open the ESM14 has closed higher 16 of the last 18 trading days and 15 of the last 16 with the one down day being down just 1 tick. The E-mini futures have been up 9 days in a row.

There is little doubt that lower volumes have worked in favor of the S&P’s march to new highs. As the VIX drops to historically low levels the S&P will sell off at some point but there is no sign of that right now.

Many people we talk to think the current slow down / up move could continue right into the fall. There are a lot of nervous longs in the stock market but the VIX does not seem to be scaring anyone out right now.

The Asian markets closed modestly higher and in Europe 11 of 12 markets are trading lower. Today’s economic and earning schedule starts with the MBA Purchase Applications, Quarterly Services Survey, EIA Petroleum Status Report, 10-Yr Note Auction, Treasury Budget and earnings from H&R Block (NYSE:HRB), CHC Group (NYSE:HELI) , and Restoration Hardware Holdings (NYSE:RH).

Our View

The S&P is giving the impression that it wants to go down but that will require the sellers to return. From what we see, it looks like they went on an extended vacation. From Monday's 1954.75 high to yesterday’s 1943.00 low was an 11-handle pullback, the largest since Friday May 16th, when the market closed down 18 handles, and May 20 when the ESM closed down -14.2. After that, the only down day over the last 15 sessions has been on May 28 (down 1 tick).

While the S&P may have broken its winning streak in the S&P cash, the futures managed to close 3 ticks higher yesterday keeping the winning streak at 9 days and counting. Our view is to sell the early rallies and buy weakness and look at buying some cheap puts for a lotto play.

• In Asia, 6 of 11 markets closed higher : Shanghai Comp. +0.12% , Hang Seng -0.05%, Nikkei +0.50%.
• In Europe, 11 of 12 markets are trading lower : DAX -0.79% FTSE -0.48%
• Morning headline: “Europe and S&P futures seen lower off World Bank Warning”
• Fair Value: S&P -.90 , NASDAQ -0.05 , Dow Jones -8.15
• Total volume: 1.03 MIL ESM and 13.5K SPM traded (mostly spreads)
• Economic calendar: MBA Purchase Applications, Quarterly Services Survey, EIA Petroleum Status Report, 10-Yr Note Auction, Treasury Budget and earnings from H&R Block (NYSE: HRB), CHC Group (NYSE: HELI), and Restoration Hardware Holdings (NYSE: RH).

• E-mini S&P 500 1945.25+1.25 - +0.06%
• Crude 102.15+0.02 - +0.02%
• Shanghai Composite 0.00N/A - N/A
• Hang Seng 23168.08-89.209 - -0.38%
• Nikkei 225 14961.02-108.461 - -0.72%
• DAX 9949.81-78.99 - -0.79%
• FTSE 100 6838.87-34.68 - -0.50%
• Euro 1.3536