Best Month for S&P 500 Since October 2011

Danny Riley
ES 03-15 (60 Min) 3_1_2015
ES 03-15 (60 Min) 3_1_2015

The S&P 500 cash (^GSPC:SNP) fell off on Friday but still closed out February with the largest monthly gain since October 2011. After a rough start to the year, February’s big push to new highs again showed how it takes bad news and turns it into good. On the last trading day of the month the Dow Jones Industrial Average (^DJI:DJI) fell 81.72 points or -0.4% to 18132.70. February was the best month for the Dow since January 2013, rising 5.46%. The S&P gained 5.49% while the Nasdaq Composite (^IXIC) closed down 24.36 points or down 0.5% to 49.63.55, just 36 points away from its 15-year highs at the 5000 level.

I remember vividly how the Nasdaq futures rallied almost every day for months leading up to the 2000 tech bubble and I also remember how fast it unraveled. While there was not a lot of fanfare when the Dow traded above 18,000 and when the S&P finally broke through 2100.00, it’s been a long journey back to the top for the tech-laden Nasdaq. But for many people that were trading tech stocks it was frightening how fast the stocks went down. Some stocks went down so fast, investors couldn’t get out and many companies just disappeared. There were high-flying names that everyone piled into, only to be stuck with a stock that lost 80% or 90% of its value in a matter of days or weeks. Some traders we know got stuck long the QQQ’s and held them for years. What was supposed to just be a quick scalp ended up a position of pain. It’s our guess the Nasdaq could be nearing an inflection point or a resistance area, but we all know that until we see a pickup in volume on the downside, selling weakness will be a difficult trade.

Traders complain when it’s too busy and they complain when it’s too slow. While we do think there will be a pickup in trade this week due to all the economic releases and Fed speak, we don’t get the feeling that the overall price action will change that much. Do I think the S&P can go down a little further? Sure, but I don’t think it will last for very long. It’s our guess the mutual funds will start out March like they did February but not as strong a start.

This week should be a busier week — there are a total of 27 economic releases, 14 T-bill or T-bond auctions or announcements, Janet Yellen speaks, 4 Federal Reserve bank presidents speak and we have the February jobs number on Friday.

Today we have personal income and outlays, Gallup US consumer spending measure, PMI manufacturing index, ISM mfg.index and construction spending.

ES 03-15 (60 Min) 2_26_2015
ES 03-15 (60 Min) 2_26_2015

Our view: The mutual funds sold the final days of January and bought the first 10 days of February. This buying pushed the S&P futures to new all-time highs. Today is the first trading day of March and what we will be looking for is to see if the mutual funds start the month out buying again. For me I take a simple approach: There is no place else to put your money but into stocks. And even when the Fed starts to raise rates it will still be like that.

I said over a week and a half ago that the bus was getting too full, and despite it going up a little more, that was the right idea. The ESH15 had gone too far without a pullback and was overbought and still is. Our view is the the selloff is not over and that it’s possible the S&P runs some sell stops under 2100.00 before heading back up again. We lean to selling the early rallies and buying weakness, but we will be looking to see if the mutual funds are buying on the half hour. If they are, then we could be looking at a trend day up and buy imbalances for the close.

“S&P 500 Futures: Traders Go on Strike”

As always, please use protective buy and sell stops when trading futures and options.

  • In Asia 9 out of 11 markets quoted closed higher: Shanghai Comp +0.78%, Hang Seng +0.26% Nikkei +0.15%

  • In Europe 11 of 12 markets are trading lower: DAX -0.29%, FTSE -0.24%, MICEX +0.15%, Athens GD.AT -1.89%

  • Fair value: S&P -1.88 , Nasdaq -0.45 , Dow -15.55

  • Total volume: 1.2mil ESH and 7.8k SPH traded

  • Economic schedule: Personal Income and Outlays, Gallup US Consumer Spending Measure, PMI Manufacturing Index, ISM Mfg. Index, construction spending.

  • E-mini S&P 5002098.75-6.00 - -0.29%

  • Crude56.50+2.39 - +4.42%

  • Shanghai Composite0.00N/A - N/A

  • Hang Seng24465.381-237.398 - -0.96%

  • Nikkei 22518703.6-111.561 - -0.59%

  • DAX11309.76+29.399 - +0.26%

  • FTSE 1006882.20-6.93 - -0.10%

  • Euro1.1137