Is The Market Giving Us A Sign?
Stock index futures finished mixed last week,
in what was another very quiet, low volatility week of trading. In fact, for
the 2nd week in a row, the SP 500’s weekly change was less than two points.Â
Other than the continued slide in tech shares, there really wasn’t anything very
noteworthy about the trading action. The decline in tech shares contributed to
the NASDAQ Composite’s 6th down week in a row. While 6 down weeks in a row
sounds drastic, the overall decline has only been about 5%, which is not much
for an index that has rallied as much as the NASDAQ has in the past year. The
most important action of the week may have taken place in the currency markets,
where the U.S. Dollar was able to continue its recent counter-trend rally.Â
Should the greenback continue to move higher, it could have all sorts of
negative ramifications for many of the large multi-national companies, such as
IBM, that have reported earnings surges largely due to foreign buying.
The March SP 500 futures closed
Friday’s session with a gain of +1.25 points, and finished the week with a gain
of +0.75 point. Volume in the ES was estimated at 593,000 contracts, which was
ahead of Thursday’s pace, and right at the daily average. On a weekly basis,
the ES posted a 2nd doji in a row as it consolidates above its 10-week MA.Â
Looking at the daily chart, the ES stalled at broken trend line resistance and
is forming a bear flag below its 10-day MA. On an intraday basis, the contract
closed right above 60-min and 13-min trend line support at 1144.
                   
The Banking Index (BKX)
breached the upper trend line of its daily triangle, but was unable to hold the
breakout and closed just under its all-time high that it posted in January. The
VIX gapped open below its January multi-year low, but was able to close back
above it. We’ll want to watch the Dollar Index (DXC) here also (see above).Â
The Dollar is testing a triple-top at the upper end of its trading range at 88.
                   
In many
ways, the month of February was very similar to the late summer period when
volume is low and earnings season has concluded. Overall, it’s been positive
that the key indexes have held up so well during a time when many of the
“experts†were looking for a serious correction. But, on the other hand, with
the extremely large amount of inflows into equity mutual funds in the last
several weeks, it’s also kind of bothersome that equities have stalled. Many
times, if stocks stall when little bad news is present, it’s a sign of excess
supply in the market such as insiders selling, the “smart money†raising cash,
and/or too much new stock coming to market. This is what happened in early 2000
when all the IPOs and insider selling exhausted the record inflows coming into
mutual funds.Â
Program Trading Levels
Fair Value – (0.44)
Buy Program Premium – 0.43
Sell Program Discount – (1.29)
Closing Premium – (0.34)
Closing Bias: If the futures gap up at the
open, watch for a retracement down towards the gap fill.
Please feel free to email me with any questions
you might have, and have a great trading day tomorrow!