Macro Wrap – WHY Are Stock Futures Down This Morning? $SPX, $DJIA, $RTY

by Enis August 15, 2013 7:35 am • Commentary

The S&P 500 is set to open near a one month low this morning, as SPX futures are down about 7 points.  Why?

  • My Bloomberg headline reads, “Stocks Drop with Bonds on Egypt Violence”
  • FT:  “Stocks Soft as Bond Yields Hit New Highs. Nikkei Slides After Corporate Tax Cut Denied”
  • Reuters:  “Global Shares, Dollar Lower as Investors Fret About the Fed”

If I searched further, I bet I could find a few more variations for WHY stocks are down.  But the headlines, as usual, are ex post facto explanations.  Heck, if stock futures were up today, the headline would just have a rosier feel to it.

SPX futures are down because sellers have gotten more aggressive and buyers less aggressive.  We’ve seen some signs of that occurring among individual issues, namely the lack of new highs, persistently low breadth, and anemic volume in the broader market in the past few weeks.  Today, the price action in the index is reflecting the culmination of that process as we hit sell stops set below the market.

Granted, SPX futures are only down about 30 points from their August 2nd high, but near a new one month low this morning.  That fact alone gives you a sense for how little movement has occurred in SPX futures in the past month.  We’ve reached a crucial technical area:

SPX Sept Futures, Courtesy of Bloomberg
SPX Sept Futures, Courtesy of Bloomberg

The red line is drawn at the May high at 1678 in the Sept futures.  That’s the level to watch today to see if it’s a false breakdown and buyers regain control, or we continue lower.  The green line is the June high of around 1649, which is close to the current level of the rising 50 day moving average around 1651.  That’s the second level of support to watch.

The DJIA is set to open right around its 50 day moving average:

Daily chart of DJIA, 50 day ma in pink, 100 day in green, 200 day in black, Courtesy of Bloomberg
Daily chart of DJIA, 50 day ma in pink, 100 day in green, 200 day in black, Courtesy of Bloomberg

The DJIA has closed below its 50 day moving average on only 10 trading days in 2013 (and has not closed below the 100 day moving average, currently around 15090, the whole year).  But the Dow has been the weakest major index.  Small cap stocks have been stronger, and the Russell 2000 is still a few percent above its 50 day moving average:

Daily chart of the Russell 2000 index, 50 day ma in pink, 100 day ma in green, 200 day ma in black, Courtesy of Bloomberg
Daily chart of the Russell 2000 index, 50 day ma in pink, 100 day ma in green, 200 day ma in black, Courtesy of Bloomberg

The 1000 level is obvious technical and psychological support for the Russell in 2013.  That is still a ways away from coming into play.

In the meantime, we have a very busy data calendar this morning.  Jobless claims, CPI, and Empire Manufacturing are released at 8:30 am.  Industrial Production is at 9:15 am, and the Philly Fed release is at 10:00 am.  Regardless, I have a hunch realized volatility will be picking up in the next week, summer doldrums or not.  Price movement is always the most important catalyst for further price movement, whatever the headlines say.

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