Well, we finally got a down day. Was the seloff broad? No, the S&P closed down -0.49% and the Dow was only off -0.39%. For the first 10 minutes of trade the big S&P traded in a one-handle range. We have seen a lot of chop lately, but we have never seen the S&P sit for such long periods of time going nowhere. So far 314 companies that have reported earnings are on track to grow by 2.6% in the third quarter compared with the same period in 2012. Volume picked up, but most of it was tied to selling off.
Yesterday's widely expected announcement by the Fed that it would press on with its asset purchases shows that the central bank is handcuffed because the government shutdown distorted and delayed several key economic indicators. The Fed's statement basically amounted to a declaration that the Fed is not ready to decide and did not say when it would be. While maintaining an optimistic assessment of "growing underlying strength in the broader economy," the Fed said it expects inflation to rebound. The one essential thing that was lacking in the statement: clarity.
We think we will see lower prices today. After closing higher 12 out of the last 15 sessions and rallying 122 handles since the Oct. 9 low of 1640, it feels like it may be rest time for the S&P. While the S&P did take a small hit yesterday and is down a little this morning, both the Fed and the BOJ continue to support the markets. Our view is to sell rallies today. We should have left the buy part out of yesterday's call, but that said we just don't feel that we have seen the pullback yet.
As always, use stops and keep an eye on the 10-handle rule. Don't forget to catch MrTopStep on The Closing Print video. We report directly from the SPX pits, wrapping up the day and positioning for trade tomorrow.
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