Financials Halt Rally
Strong dealer buying in the first 60 minutes of trading gave way to nervous selling in the SPU on the heels of a turnaround in the financial sector. One major dealer has been a seller of nearly 2500 contracts, while numerous dealers were strong buyers between 1502-1507.
Locals were aggressive buyers above 1507, but quickly covered positions when the market could not trade up to 1510. Overall, its classic sector rotation. We are reminded of the type of trading that took place in November ’99 – January ’99, where one index would outperform another in dramatic fashion. These are difficult markets to trade, and too many traders make the mistake of using strength in the NDU to buy the SPU. While there is a correlation, there are often large periods of decoupling. As for the remainder of today’s trade, I am looking for a choppy downward move that should accelerate on any 30 minute close below the 1493-1491 support zone. If this happens look for yesterdays low to be taken out before the market finds support around 1478. It is worth noting that the premium settled below fair value for the first time since September became the lead contract at the end of Monday’s session. In addition, yesterday was a low volume rally in both the Nasdaq and SPX. Only an hourly close above 1502 would reverse my thoughts of selling to buying.