Keep a Pit Bull expiration-week trading rule in mind today
The Asian majors closed down sharply and in Europe 9 of 12 markets are trading lower this morning. Today’s economic and earnings calendar starts with the MBA purchase applications, Cleveland Fed President Sandra Pianalto’s speech at the Global Interdependence Center women’s conference in Philadelphia, Atlanta Fed business inflation expectations, 10-year note auction, earnings from Cisco (CSCO) Systems and Macy’s (M), Treasury budget and Federal Reserve Chairman Ben Bernanke’s town hall meeting with educators in Washington at 7 p.m. ET.
The S&P bends, but it really doesn’t break.
Yesterday on Bloomberg Radio, Atlanta Fed President Dennis Lockhart said the Fed could reduce, or taper, its bond-buying program in December. “I don’t think the circumstances rule out a consideration in December,” he said. Then during a speech in Montgomery, Ala., Lockhart said, “Monetary policy overall should remain very accommodative for quite some time.”
And Minneapolis Fed President Narayana Kocherlakota said “market speculation” about the beginning of a reduction in the Fed’s bond-buying program is “puzzling” given current economic challenges and that the Fed must do “whatever it takes” and that “will mean keeping a historically unusual amount of monetary stimulus in place and possibly providing more stimulus.”
What this shows is the Fed still has no clear vision of how and when to taper or begin the exit from the Fed quantitative easing program, QE3+.
Have you ever heard of “up a day / down a day” price action during the expiration? This is a Marty “The Pit Bull” Schwartz trading rule. The way it works is that during the week of the expiration the S&P tends to close higher one day and down the next and back up again. Monday up, Tuesday down means today should be up.
Simple, huh? Not according to the Ned Davis stats. Yesterday’s stats were among the weakest of the week: up 14 / down 15 of the last 29 occasions, surpassed only by Monday’s up 12 / down 17.
Our view: As we said in yesterday’s video, the S&P never does what “everyone” wants it to do when they want it. It’s an unruly contract that needs to to rebuild thrust before it makes a new high. Instead of punching out the contract highs, the E-mini S&P 500 Dec 13 (ESZ13-CME) has to sell off first and get people short.
Is today the day for taking out the highs? It’s possible, but if not there’s always Thursday and Friday. Our view is to sell the early rally and buy weakness. According to the Ned Davis stats the Wednesday before the November expiration has been up 19 / down 10 of the last 29 occasions and Thursday and Friday are up 16 / down 13 and up 18 / down 11 of the last 29 respectively. The full report includes the S&P and Nasdaq.
As always, keep an eye on the 10-handle rule and please use stops when trading futures and options.
- In Asia, 10 out of 11 markets closed lower: Shanghai Comp. -1.83%, Hang Seng -1.91%, Nikkei -0.15%.
- In Europe, 11 of 12 markets are trading lower: DAX -1.01%, FTSE -1.62%.
- Morning headline: “S&P Futures Seen Lower Ahead of Bernanke Town Hall Meeting”
- Total volume: LOW 952k ESZ and 5k SPZ traded
- Economic calendar: MBA purchase applications, Cleveland Fed President Sandra Pianalto’s speech at the Global Interdependence Center women’s conference in Philadelphia, Atlanta Fed business inflation expectations, 10-year note auction, earnings from Cisco Systems and Macy’s, Treasury budget and Federal Reserve Chairman Ben Bernanke’s town hall meeting with educators in Washington at 7 p.m. ET.
- E-mini S&P (Sep)1763.00-2.00 - -0.11%
- Crude97.80-1.42 - -1.43%
- Shanghai Composite0.00N/A - N/A
- Hang Seng22463.83-437.58 - -1.91%
- Nikkei 22514567.16-21.52 - -0.15%
- DAX9046.99-29.49 - -0.32%
- FTSE 1006649.19-77.60 - -1.15%