S&P Futures Record High Close: Where Is The Top?

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 |  Includes: SPY
by: Danny Riley

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The S&P 500 [SNP:^GSPC] rallied to another all-time high yesterday, closing just a few points off its new record high. The Dow [DJI:^DJI] led the way. The Nasdaq jumped to another 13-year high. Insurance stocks, mergers and and mixed earnings and economic data helped propel the markets higher.

The S&P started out January mixed but by the end of the month began to sink (Jan. 24 -42.10), and five trading days later, on Feb. 3, the index sank another 43.8 points, leaving the index down 5.8% on the year. Over the next 15 trading days the ESH14 (S&P E-mini future) rallied 125.75 points, or an average gain of 8.32 handles per day.

Going up in 2014

In 2013 I had a clear vision of where the S&P was going; I was bullish. The S&P pulled back / sold off and then rallied again. But in 2014 after listening to every “Tom, Dick and Harry” and the S&P accelerating to the downside backed by oversize volume, the decline had the feel of a turning point; in fact, I even got bearish. Thinking that the markets could continue down cost me my feel for the markets over the last few weeks. We thought the 1732 low would be good for a bounce, but honestly, we never thought it would rally as much as it has.

Trader’s Almanac best 6 months for stocks

When we asked Jeffrey Hirsch from the Stock Trader’s Almanac what his view was last Dec. 16, during MrTopStep’s annual roundtable, he said that there would be a further sell-off in the S&P (he was right) and then a bounce back to new highs. He ended by saying that he was looking for the markets to top in April or at the end of the best 6 months for stocks. So far Jeff has been right on with his call based on where the S&P is trading right now. We have seen it all too many times; the S&P rallies into the March expiration, the end of the first quarter, and starts going down right after.

Sam Stovall

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Sam Stovall, S&P Capital IQ’s chief equity strategist, said yesterday that fourth-quarter earnings increased by an average of 7.9%, beating economists’ forecasts of 5.7% but still nowhere near the 30% market gain for 2013. This disparity is one reason why investors shouldn’t get overly optimistic – at least not yet.

“Despite the near-30% price jump in 2013, and the more than 170% increase in prices since the 2009 low, stocks have not gotten ahead of fundamentals, in our view, as EPS growth has kept pace with price advances over the past five to seven years,” Stovall said. His year-end target for the S&P is 1940, which is just a 5% yearly gain.

If that is the case, the S&P 500 is only 100 points away from its high for the year. In the end no one knows when and at what price the S&P will top out. It’s already way past most people’s expectations. And maybe part of the reason the markets went up so much yesterday is because the US and the EC will have to warm up the printing presses again for Ukraine.

The Asian markets closed mostly lower (Shanghai Composite -2.04%) and in Europe 8 out of 11 markets are trading lower. Today’s economic schedule starts with the FHFA House Price Index, Redbook, S&P Case Shiller HPI, Consumer Confidence, Richmond Fed Manufacturing Index, Federal Reserve Gov. Daniel Tarullo speech to NABE in Arlington, Va., 2-yr note auction and earnings from Home Depot (NYSE:HD), Macy’s (NYSE:M), Toll Brothers (NYSE:TOL), Boston Beer (NYSE:SAM), First Solar (NASDAQ:FSLR), Chicago Bridge (NYSE:CBI), Dreamworks Animation (NASDAQ:DWA), Solar Capital (NASDAQ:SLRC), Sanderson Farms (NASDAQ:SAFM), Sempra Energy (NYSE:SRE), American Tower (NYSE:AMT), Bank of Montreal (NYSE:BMO), Domino’s Pizza (NYSE:DPZ), Expeditors International (NASDAQ:EXPD), Weatherford International (NYSE:WFT).

Day late, dollar short, direction unknown

Our view: If anyone sold into the early rally yesterday they got run over. No excuses, but we were looking for the ESH14 to “run the stops” last Friday. As of yesterday’s close the S&P has been up 13 out of the last 16 trading days in February. The Pit Bull and I were talking about two things: 1) the lack of pullbacks on the days the S&P trends higher and 2) the overall lack of trading volume.

Our view overall is that the S&P is going up, but after such a big push up we should see some type of sideways to lower price action today. But we also can’t forget that Tuesdays often turn into Turnaround Tuesdays. Late buying could turn the morning’s downtrend on its head before the closing bell rings.

This is a good day to watch the MiM.

As always, keep an eye on the 10-handle rule and please use protective stops when trading futures and options.

  • In Asia, 6 of 11 markets closed lower: Shanghai Comp.-2.04%, Hang Seng -0.32%, Nikkei +1.44%
  • In Europe 8 of 11 markets are trading lower: DAX -0.50% , FTSE -0.84%
  • Morning headline: “Markets sideways to lower, digesting news and new highs”
  • Total volume: 1.6Mil ESH14 and 9.8K SPH14 contracts traded
  • Economic calendar: Redbook, FHFA House Price Index, S&P Case Shiller HPI, Consumer Confidence, Richmond Fed Manufacturing Index, Federal Reserve Gov. Daniel Tarullo speech to NABE in Arlington, Va., 2-year note auction.