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The S&P 500 [^GSPC:SNP] took Tuesday’s gains and turned them into a new all-time contract high yesterday. Better-than-expected earnings out of Bank of America (NYSE:BAC) and the biggest ride in the Producer Price Index since last June helped extend Tuesday’s gains. There’s more buying to come, by humans and algos.

Sell-offs create more buy stops above the market

Monday’s decline has turned into a buying bonanza. When the S&P goes down so quickly, the sellers end up selling into the hole. With most traders in a mindset that 2014 is going to see a big downturn, the sellers have felt confident that now is the time. In fact, the sellers actually helped feed the S&P futures higher after the big sell-off.

With the ESH14 so close to its all-time high, the sell-offs also tend to increase both the size and the range of the buy stops above the market. After the algorithms chased the sell stops down all Monday, they clearly switched to chasing upside buy stops yesterday.

3 15 2014 tweet 300x137 S&P 500: Perfect storm on the upside, with MTS calling the algo plays

MrTopStep was fast to not only warn traders of what was above but also put out exactly where the cluster started and ended: 1837.70 to 1844.50; the early high was 1838.25 and the late high came in at 1845.75, so we nailed it.

Perfect storm on the upside

Monday’s sell-off, the January expiration and new money going into stocks at midmonth have created a perfect storm on the upside. It was only a few days ago that we called on our friend Jeffrey Hirsch from the Stock Trader’s Almanac to shed some light on the direction of the expiration. Even Jeff said some January expirations don’t go so well. But this two-day rally seems to not only be setting that record straight but reminding us of the old rule,“How January goes, so goes the year.”

The trend is your friend

With the S&P up so much in the last 13 months, it’s easy to understand that the public is looking for a pullback in the new year; but isn’t that what they were waiting for last year? The trend is your friend, traders, and the recent sell-off and recovery is no different than any other sell-off in the last year.

Let’s face it, the S&P is up too high for the public to buy and too firm to sell. While I did do a bit of a flip-flop ( I hate when that happens), I have to go back to one simple thing and it’s called price action. Nothing has changed from 2013 to 2014. And we assure you that when the time comes we will all know the reversal is here. Until then we’re back to going with the flow.

The Asian markets closed mixed and 7 of 12 Europe markets are trading lower. Today’s economic and earning schedule includes the Consumer Price Index, jobless claims, Treasury international capital, John Williams speaks, Bloomberg Consumer Comfort Index, Philadelphia Fed survey, Housing Market Index, EIA natural gas report, Fed Chairman Ben Bernanke at Brookings Institution’s Conference on Central Banking after the Great Recession at 11:10 a.m, 3- and 6-month bill announcement, 10-year TIPS announcement and earnings from BlackRock (NYSE:BLK), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), UnitedHealth (NYSE:UNH), Charles Schwab (NYSE:SCHW), American Express (NYSE:AXP), Intel (NASDAQ:INTC), PNC Financial (NYSE:PNC), Capital One (NYSE:COF) and Sallie Mae. The S&P is surging and it’s not over yet …

Our view

It’s been the ultimate “squeeze job” and it’s not over. Maybe the S&P pulls back today, but if it does we expect it to go back up on Friday. Look, we want to be part of the downside if the S&P corrects, but until then we think it’s business as usual. Am I as bullish as I was? No, but that doesn’t mean the S&P can’t keep going up. Last I checked, the S&P hasn’t asked for my opinion on where it should go. We lean to selling the early rally and buying weakness with the idea the S&P could be in for a small pullback.

  • In Asia, 6 of 11 markets closed higher: Shanghai Comp. +0.02%, Hang Seng +0.37%, Nikkei -0.39%
  • In Europe 7 of 12 markets are trading lower: DAX -0.19%, FTSE +0.05%
  • Morning headline: “U.S. Stock Futures Fall as Best Buy, Citigroup Decline”
  • Total volume: 1.26M ESH14 and 7K SPH14 traded
  • S&P fair value: 1842.23 (+0.73)
  • Economic calendar : Consumer Price Index, jobless claims, Treasury international capital, John Williams speaks, Bloomberg Consumer Comfort Index, Philadelphia Fed survey, Housing Market Index, EIA natural gas report, Fed Chairman Ben Bernanke at Brookings Institution’s Conference on Central Banking after the Great Recession at 11:10 a.m, 3- and 6-month bill announcement, 10-year TIPS announcement and earnings from BlackRock, Citigroup, Goldman Sachs, UnitedHealth, Charles Schwab, American Express, Intel, PNC Financial, Capital One, Sallie Mae, People’s United, Skyworks Solutions.
    • E-mini S&P 5001837.25-4.25 - -0.23%
    • Crude98.55-0.22 - -0.22%
    • Shanghai Composite0.00N/A - N/A
    • Hang Seng22986.41+84.41 - +0.37%
    • Nikkei 22515747.2-61.53 - -0.39%
    • DAX9724.00-9.81 - -0.10%
    • FTSE 1006822.15+2.29 - +0.03%
    • Euro1.3601

     S&P 500: Perfect storm on the upside, with MTS calling the algo plays

Source: S&P 500: Perfect Storm On The Upside, With MTS Calling The Algo Plays