S&P In a Vulnerable Spot
Today's Idea
Stock market fundamentals have turned a bit sour on disappointing economic figures and uncertainty over the future of the Middle East. Without major earnings looming over the market, economic data will likely be nit-picked by traders. The chart shows the March E-mini S&P in a vulnerable position, and failure to hold the 1300 level could send the market lower. Given the erratic action of the market lately, some traders may wish to consider entering into a bear put spread by buying the March E-mini S&P 1300 puts and selling the March 1275 puts for a debit of 9.00, or $450. The spread risks the initial cost for a maximum profit of $800 if the settlement of the March contract is below 1275.00.
Fundamentals
Equity prices have lacked upward momentum over the past two weeks. Many traders have begun to question economic fundamentals, after reports indicating that consumer spending, housing, and job growth are not progressing as much as many traders would like. The instability in the Oil producing area of the world threatens consumer spending, as US consumers will likely spend less on items other than fuel. It also poses a potential obstacle to job creation, as businesses run leaner to make up for increased material and fuel costs. Technology, which was a major driving force behind the market's rally, is especially vulnerable to rising food and fuel costs. Less discretionary income could have an adverse impact on electronics manufacturers and retailers. Many traders will remain focused on tomorrow's non-farm payroll number, which is expected to show 200k jobs added last month. For the economic recovery to show tangible progress, many traders believe that the non-farm number needs to show at least 150k jobs added a month. While the government can tweak the unemployment rate, it cannot add non-existent jobs to the figure. If tomorrow's non-farm number is able to meet or exceed expectations, many traders will likely breathe a collective sigh of relief.
Technical Notes
Turning to the chart, we see at the March E-mini S&P has found support at the 1300 level. This can also be viewed as the trigger-line on a potential double-top pattern on the daily chart. Prices have been centering near the 20-day moving average, and a breakout below support at 1300 could potentially result in a violation of the 50-day moving average, which may be a bearish sign for the market.
Rob Kurzatkowski, Senior Commodity Analyst
