By Danny Riley

A lot of S&P index futures charts have squiggly lines. Some are red lines, some are green, others are blue. Some of the lines are above the price, some are below and some cross over. Squiggly colored lines are a very big part of today’s high-tech charting systems and a big part of how people read the markets.

In the last three trading days the ESZ has rallied 38 handles, so the squiggly lines are all over the place, but those are not the lines we care about. The line we are looking at is the basic white line. If you follow it, it’s pointing to 1475. If you’re a BULL and looking for positives there seems to be an abundance. From better earnings and economic numbers in the U.S. to Moody’s keeping its credit rating unchanged on Spain, in line with Standard & Poor’s. The markets are forging higher again. While the white line on the chart is pointing higher. you can see that after every new high there was a pullback. That is what we call “back and filling.” While we like the market and think higher, we also don’t want to get ahead of ourselves. Meaning there will be pullbacks and a readjustment at some point but that may not come until year end or the beginning of 2013. And if Romney gets elected, the fiscal cliff will be moved forward. Let’s face it, the BULLs are winning and they are pressing their year end / presidential bets. Additionally, the housing market has been making a comeback too. In August housing starts jumped by a whopping 15%, and on a year-over-year basis new construction is up over 38%. The housing pickup is also a positive for durable goods as the buyers need to furnish the new homes.  

We know that the party will end at some point, but right now we see no reason to jump off this bus. This morning China reports its GDP, industrial production and retail sales and EU leaders begin a two-day meeting which could include headlines about the Spanish bailout. The current rally has surprised a lot of analysts and traders who expected the earnings to come in weaker. Art Cashin, director of floor operations at UBS, could not have said it better: “Everybody keeps saying it’s the Fed shoveling money at things, it’s going beyond the (Fed Chairman Ben) Bernanke put now. It’s the Bernanke Santa stocking.”

Earnings and economic reports:  At 7:30 weekly jobless claims are expected at 365,000 after last week’s surprise, once-off dip to 339,000. That decline was blamed on a technicality when one large state did not file some accumulated claims. The Philadelphia Fed survey data and leading indicators report at 9:00 a.m CT. Before the bell: Travelers, Verizon, Blackstone, Morgan Stanley, Philip Morris, Diamond Offshore, Nokia, Southwest Air and Union Pacific report earnings. After the bell, heavyweights Google and Microsoft report along with Capital One, Advanced Micro Devices and Chipotle. As we have always said, we are not here to fight city hall and if the markets are going up we want to go for the ride. 1475 here we come …

  • Thursday             up 17 / down 11 of the last 28 occasions
  • Exp. Friday         up 16 / down 12 of the last 28 occasions

MrTopStep Closing Print Video: http://www.mrtopstep.com/31764/

Our view:
It’s a funny world we live in. The traders who saw the credit crisis coming are the same guys that are still doubting the rally. Like it or not, the stock market has been going up since 2009. Being bearish is not working.

  • It’s 6:00 a.m. and the ESZ is down 0.50 handles at 1456.50, crude is down 3 cents at 92.09 and the EC is trading 1.3119, down 13 ticks.
  • In Asia 11 out of 11 markets closed higher (Shanghai Comp. + 1.24%, Hang Seng +0.48%).
  • In Europe 7 out of 12 markets are trading modestly higher (CAC -0.13%, DAX +0.37%).
  • Today’s headline: “European Shares Steady As China Data Eases Growth Worries.”
  • Economic calendar: Today: Jobless claims, Philadelphia Fed survey, leading indicators; earnings from Morgan Stanley, Philip Morris, Travelers, Union Pacific, Verizon, Fifth Third, Huntington Bancshares, KeyCorp, Nokia, Google, Microsoft, AMD, Capital One, Chipotle, E-Trade. FRIDAY: Existing home sales; earnings from GE, McDonald’s, Schlumberger, Honeywell, Edwards Lifesciences.
  • VOLUME (LOW): 1.53mil ESZ and 10.5k SPZ traded
  • SPREADS: 42 SPZ/H spreads traded
  • FAIR VALUE: S&P -0.5,  NASDAQ -3.5

Brian’s Wednesday recap:
Three weeks from the presidential election, one more debate and a seemingly infinite amount of campaign commercials invading our home, offices and basically our personal bubble. President Obama showed up and made his presence well known, but neither candidate is showing enough leadership and their message is not clear or concise! No downgrade for Spain and up goes the Euro, giving a nice cushion to bounce from and allowing the bulls to push their horns a little higher. Speaking of bubbles, China’s economic data has been inline to firming lately and plenty of traders do not fully trust their data, but their economy is one of the biggest pixels in the global picture and the Asian markets could be busy tonight as their economic calendar is busy. Domestically, the corporate earnings season is off to a mixed, a best start and the equities are rotating from sector to sector. The techs took another punch to the gut following IBM, INTC, LLC and MCHP earnings, but the housing sector continues to firm suggesting a firming consumer demand may be in the works. Tick tock…..

Morning observations: So here’s the number du jour: The SP futures opened the U.S. session higher yet again.  This month the S&P futures have opened higher of 11 of 13 days. What makes the stat more impressive is the cumulative gain of those opens is +3.2%. During the U.S. session?  We’ve lost more than -2.0% better read: The ROTATION continues as some of the previous dogs were being bought and the marquee names have faded during the rotation of the last two weeks or so. Plenty of headlines today and more are loaded in the chute… chatter is downplaying the European Summit, not expecting any directional news.

UBS posted a large FXI trade. All in Jan13, the custy sold the 25/34 ps spread (30k x 20k) vs buying the 38 calls 20k times. Effectively buying 1.3mm shrs of FXI front running a busy China economic calendar, GDP, IP, Fixed Asset Invest, Retail sales, for later tonight – so could get interesting.

MrTS video: http://www.mrtopstep.com/10-17-12-tim-haefke/
MrTS Charts: “WHAT’S +70 HANDLES IN STOCKS ESZ 1456 / BONDS ZB IN 3DAYS? Follow-Up You’re Welcome!” http://wp.me/p1Rnj9-8fS

Wednesday started with 320k ESZ and 2k SPZ traded on Globex, trading range 1454.00 – 1446.30 / Tuesday’s RTH’s, pit range was 1451.20 – 1441.00, settled at 1449.20 up 13.7 handles. Today’s RTH’s opened 1.5 handles higher at 1450.80 – 1451.00. During the opening minutes 23 of the 30 Dow stocks were higher, but the industrial average was down 45 points after IBM and Intel both fell more than 4% on earnings. After holding 1448.50 low, the spoos traded up to 1453.80 by 9:00CT, briefly slowing down through the Globex highs and traded a high of 1456.30 by 9:50 as the sideways trade set in with the DJIA trading modestly lower. Without IBM’s decline, the DJIA would have been 60+ points in the green. Small caps, banks, financials, DJT’s and the housing industry were outperforming following some strong housing data. Treasuries were sharply lower as traders put money to work. mts2 (09:25:31): LLTC – up on the day after lowering guidance > this is similar action to what we saw in MCHP yesterday – bad news is being bought = priced in – Positive read thru for Tech footing. Well, if that in fact does come to fruition, obviously that would lend some new leadership. Following the lunch hour, the DJT’s were giving up some of the early gains and AAPL was modestly lower as crude was resting near unch’d to a bit lower. A brief retest of the spoos opening range held at 12:48 before stepping back up to 1456.50 by 1:45 AAPL was back to testing unch as the DJT’s were up 30 points. The closing imbalance showed 22 of the Dow 30 to sell and the broader market with a small $265M to the sell side. The cash close traded 1456.40 area before settling at 1457.10 up another 7.9 handles on the day after the DJIA clawed its way back to close up 5 points.  



Richard Chappell, Channels & Patterns

On the SPX daily chart there was a clear break over resistance ant the middle bollinger band yesterday and that should be support on a closing basis today in the 1448 SPX area. The next target up is the upper bollinger band, currently at 1468, and that is the retest of the highs area that I was talking about yesterday. Barring a major reversal today that’s what I’m expecting to see on Friday or Monday:




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