S&P 500 Futures: The Gift That Keeps Giving

Despite investors pulling $36 billion out of U.S. stock, mutual, and exchange traded funds (ETFs) in the third quarter, the Dow made its 51st new all-time high yesterday. Many investors think that that the continued push has made the major indexes too expensive, and with the fed talking higher rates, and the continued talks of war with North Korea, the risk is too great. Yet, the S&P has only moved 0.50% or more one time in 27 sessions, and has not seen a daily pullback of 3% or more since Nov. 4, the longest stretch without a decline since the mid-1990s, which is why so many investors worried that a big sell off could be coming.

I have said many times over the last several months; barring a war, the current rally could go on for a ‘few more years’. With the markets up so much, there is nothing wrong with taking some profits. According to B of A Merrill Lynch, the amount of cash in investors’ portfolios remains historically elevated, even though cash balances slipped to their lowest level in 2½ years in October.

A September survey from 179 fund managers with $516 billion in assets pointed out that the average allocation to U.S. stocks fell to a net 28% underweight. The last time investors had so little allocated to U.S. stocks relative to their benchmarks was in November 2007. Is that a bearish signal? It could be, but like I have been saying, ‘baring a war with North Korea’, I think the current rally could last a few more years. In the investing world, there remains a ‘no place to go but stocks environment’, even with $36 billion being pulled out. The Republican tax overhaul and strong economic and corporate data continue to be a driving force.

A trader on Twitter said a fellow trader told him if you want to be successful you need stats going back hundreds of days for any kind of strategy. My answer was simple, if you are building a system I would say yes to that, but if you are day trading I would say no. No one has ever seen anything like this, so what are the old stats really going to tell you? I have had many discussions with the PitBull about this many times. The first part is none of the stuff we used to help us make money trading do not work, and the second part is that no one has ever seen a rally like this.

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As for yesterday’s trade, the S&P 500 futures opened on the high at 2562.25, and then sold off down to 2557.25 just after 9:15. The ES then moved back above the vwap at 2560.25, before going back down and ‘double bottoming’ at the early low at 2557.25, and then took the rest of the day to rally back up to 2562.00. Again, the early MiM had over $400 million for sale, and initially the ES upticked, but when the actual NYSE imbalance came out Sell $120 million, the ES started to pull back down to 2558.25. Total volume was scary low, at 2:53 CT there were only 623,000 ES traded, and that included 130,000 from Globex.