Thursday, September 25, 2014

S&P 500 Index - No Month End Buying for September

Bearish reversal price action in S&P 500 Index at the record high is soon forgotten in the blazing brilliance of yesterday’s advance.  It was a very strong performance in S&P yesterday, gaining 0.78.  The ESZ4 (emini future) created a ‘bullish engulfing’ on light volume with open interest climbing 17k.  It is difficult in these circumstances to see any immediate bearish prospects. 

However, if the bearish reverse of Thursday through Monday, almost a text book candlestick ‘three rivers’, is correctly confirmed by the continued decline on Tuesday we should see yesterday’s advance fade quickly.  The bullish trade yesterday remains suspects until it too would be confirmed and that would not happen unless we had a higher settle today.   

 Clearly a settlement in ESZ4 below the ‘mid’ of yesterday’s advance (1980.25 or lower) would instead discount the bullish implications of Wednesday’s advance.  Finally, unless ESZ4 reaches above 1994 for settle today, the bearish implications of Monday’s decline and bearish (Thur thru Mon) reverse are further confirmed.    

At the end of last month, fund managers needed to square up and take in equity holdings, leaving cash levels lower lest they show they missed the months 4% gain.  However, although the index had risen by 7% from the August 8th low to Friday’s high, the index is actually flat over the last month.  As such, a prudent manager might be seen as holding a little more cash.  Therefore month-end selling rather than buying should be expected and there are only 3 more business days this month after today.

There will be a lot of surprised traders should S&P reverse more than half of yesterday’s gains today.  They may not act soon enough to prevent further losses and the result could be a much lower close at week’s end.   

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