No doubt “Big Money” influenced the current stock market rally. Last week the September 2012 E-mini S&P opened at 1390.25 and closed the week at 1402.50.
On the daily chart below you can see how back on May 1 the S&P traded just above 1400, but did not close above there. You can see the drop in May taking the S&P down to 1260 on June 4, but not closing below there. From there you can see the rally up start and continue through June, July and August, with this past Friday’s close at 1402.50. Looking at the price action you can see how it was a very bumpy ride up. Current technicals show the S&P in a weak trend with ADX at 23, but rising. DI+ crossed up over DI- back on Friday August 3. MACD has been bullish, but currently is dropping divergence and Stochastics are in deep overbought territory. Technically, we could expect a correction.
Proceed to Page 2 for the latest COT Data...
Now take a real good look at the weekly chart below. You can see the weekly rally started the first week of October 2011 and did not show signs of weakening until the first week of April 2012. Looking closer you can see how Big Money was trading in the S&P back in October 2011 as the market hit lows below 1,110.00. Now look at the posture change of Big Money on the rally up. Interesting isn’t it? The COT even showed the weekly correction down in April-May as Big Money liquidated.
This past Friday Dealer/Intermediaries added to net shorts at -351,021 contracts as did Leveraged Funds now -444,124 contracts net short. So who is buying? Asset Managers are now net long 603,421 contracts. An interesting view is the difference between how Leveraged Funds are trading in the S&P as compared to the Dow.
If you need help understanding how to understand how to use the NEW COT report to your benefit get instant access to my new e-book "What Lies Beneath ALL Trends". It is filled with eye opening information.Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.
Proceed to Page 3 for this week's detailed fundementals...
What we have been reading about in the press for weeks is the on-again/off-again speculation on Fed stimulus. Increased speculation brings the markets up. Why? The markets would like to see QE3. But think about this, as long as the market responds favorably to just talk, the Fed will keep on talking. When talking does not work anymore, we will see stimulus put into action.
If we see the markets drop too much before the election, no doubt QE3 will be announced pushing the market up. The markets do not like uncertainty. If polls start showing a closer election, then the uncertainty of who will be president will take its toll. But watch the Fed, too great a toll hello QE3.
Of course Big Money also will have a major say in the direction of the S&P. Will we see continued buying and selling, or the start of liquidation? We will have to wait until Friday to find out. Have a prosperous trading week.
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