The S&P 500 [^GSPC:SNP] closed down over -1% and the Chicago Board of Options volatility index [^VIX:Chicago Options] jumped over 10% after Washington agreed to a budget deal in what could be a sign of the long-awaited Fed taper process. The NASDAQ Comp. fell -1.4% and the Dow closed off -0.81%.
The S&P took a beating yesterday. After an initial uptick the S&P fell into a steep decline that was backed by heavy volume and multiple sell programs throughout the day. With a possible budget battle alleviated and the VIX spiking higher and MrTopStep putting out an early imbalance to sell $2 billion in stock on the close, the S&P fell apart late in the day.
MrTopStep saw the 1786 lows and said there would be a pop back to the 1791-1793 level, but the ESZ had a hard time overcoming the 1791 and after a couple of attempts it was lights out London when the early imbalance showed big for sale.
With the stop-o-meter pointing heavily to the downside, the S&P had nowhere to go but south. Yes, our call premarket was to sell the early rallies and buy weakness, but once the pit session opened it was not hard to see how the ESZ was struggling.
Market on Close (MOC)
Since the week leading into the November month end (Nov 25 to Dec 11) there has been a total of 11 trading days and $9billion in stock sold on the closes. This selling has “ganged up” on the S&P. That combined with taper talk is whats sending stocks lower.
In Asia 10 out of 11 markets closed lower and Europe is trading lower. Today’s economic calendar starts out with jobless claims, retail sales, import & export prices, business inventories, quarterly services survey, natural gas inventories and a 30-year bond auction.
Volatility is picking up and it looks like it may stay this way. If the Fed is actually going to taper, things could get ugly fast. Do we think the S&P is going to crash? No! Do we think the S&P will bounce at some point? Yes!!!
Traders are not paid to think. They are paid to react. As Vikram says, “Ours is not to question why. Ours is but to sell and buy.” The S&P is pulling back as it should at year end.
We lean to selling the early rallies and buying weakness. The Ned Davis stats show Friday as an up 19 / down 10 of the last 29 and that falls right into line with the PitBull’s Thursday-Friday low the week before the expiration.
As always, don’t forget the 10-handle rule and please use stops…
- In Asia, 10 of 11 markets closed lower: Shanghai Composite -0.06%, Hang Seng -0.51%, Nikkei -1.12%.
- In Europe, 11 of 12 markets are trading lower: DAX -0.72%, FTSE -0.89%.
- Morning headline: “Global stocks tumble following US sell-off”
- Total volume: ES 2.0M and 27.8K SPZ traded
- Economic calendar: Jobless claims, retail sales, import & export prices, business inventories, quarterly services survey, natural gas inventories and a 30-year bond auction, Fed balance sheet, money supply and earnings from Lululemon and Adobe Systems
- E-mini S&P (Sep)1779.25-1.50 - -0.08%
- Crude97.80-1.42 - -1.43%
- Shanghai Composite0.00N/A - N/A
- Hang Seng23218.119-120.121 - -0.51%
- Nikkei 22515341.82-173.239 - -1.12%
- DAX9008.37-68.74 - -0.76%
- FTSE 1006453.72-54.00 - -0.83%