While the S&P is still in an uptrend, there is also a high level of nervousness surrounding the major indices as we go into the September quarterly rebalancing, because of a potential government shutdown, crude oil price fluctuations, and October. The Asian markets closed mostly lower and Europe is trading is mixed to lower. Today starts with 3 separate economic releases, the crude inventory numbers (API) and a 5-year note auction. After yesterday's late-day sell-off and $800 million for sale on the cash close, it appears T+3 has already begun.
Yesterday's retest of Monday's 1702 high at 1701 and the late-day rejection was a stunning turnaround. The 1701 rejection and the overall negative late-day price action seems to indicate the current decline may not be over. That said, the S&P futures have now closed down 4 days in a row: Sept. 19 (-.40), Sept. 20 (-15.0), Sept. 23 (-9.7), Sept. 24 (-.20), for a total loss of 25.3 handles.
It's important to remember that while it may be "big to sell" at the end of the quarter, the mutual and investment funds will also be trying to mark up their winning positions. With an extended selloff going on and four full trading days left in the quarter, we do not think it will be all downside. If the S&P does sell off again, we would be more concerned about a bounce than a sharp drop.
There is a high level of anxiety floating about in the markets and most of it seems to be centered between crude oil and the S&P. The shorts covered on the push to a new high, but from what we see they are putting them back out again -- they are selling. The question is, can the S&P keep going down until the end of the month? Can the S&P close down five or even six days in a row or even into the end of the quarter?
We don't think so and we believe there will be two-way price action going on right into the end of the quarter. We expect lower prices in the first part of the day but we don't think the S&P will go down much. We lean to selling the early rally and buying weakness.
As always, use stops and keep an eye on the 10-handle rule. Don't forget to catch MrTopStep on The Closing Print video found under the OptionsTV page (top bar). We report directly from the SPX pits, wrapping up the day and positioning for trade tomorrow.