S&P Futures; The OPEX 40 Handle RIP

S&P 500 Futures; 2022.00

The S&P 500 futures traded up to 2000.00 during Wednesday night’s Globex session, then proceeded to trade down to 1994.25 on the 8:30 central time open. After chopping around in a narrow trading range to the upside until around 10:30 CT, the futures reversed lower trading down to the 1989.50 level at 11:00. Throughout the first two hours of trade every sell off was met with buyers, and so was the drop down to 1989.50.

NO PULL BACKS: MOC BUY $1.1BIL

Despite a wave of negative economic reports and lower than expected earnings, Goldman Sachs being one of them, the S&P shook off the weakness from its sell off, recovered and made a new high at 2006.25 before pulling back slightly. The next buy program pushed the ESZ15 all the way up to 2019.50, above Tuesday’s 2014.75 high. I tried to explain that the focus would move to the earnings and the October Options expiration, but I had no idea Goldman would reverse higher, and crude oil would trade back up to the $46.85 level. The bottom line on yesterday’s trade was what we noticed early on; buyers were stepping in on every dip, and that went on all day long. It didn’t matter if it was a 2 handle drop or a 5 handle drop, the buyers never stopped buying all day long. I have alway questioned how it is the S&P can be firm all day, then have a 2:45 cash imbalance show over $1 billion dollars of stock to buy, and think that no one knew about it. While the big institutions that make these purchases generally use the broker that clears the trade to execute the order, my question is, how many people outside the customer know about the big buying on the close? And who’s to say that this doesn’t show up in the S&P? Clearly with the lack of any pull back, someone knew about the buying. Another question is, does front running actually exist? And if it does, do they buy the S&P knowing there is cash to buy on the close? My guess is that the mutual fund or institutions were buying all day, and that the desk executing the order let someone know. If you were a Goldman customer desk and you had several billion dollars in stock to buy would you let the guy making markets next to you get run over? Or is there some subtle way of saying this is an all day buy order, widen out your prices? In effect, letting the prop trader / market market aware that there is larger size to buy coming. It’s a hard one to figure out, but it’s even harder to believe that a firm like Goldman would just let their market maker get run over.

$ESZ15:CME 2022.00

The ESZ15 has been up 8 of 11 days in October. There is no doubt the October bear killer is at work. Early this morning, with the help of both Asia and Europe being up, the S&P futures (ESZ15:CME) rallied all the way up to 2022.00 and just dropped down to 2016 at 5:38 am CT. We said it going into this week, the S&P needed to pull back, but with a typically firm expiration week pullbacks would be few and far between. Well, shorts got their 30 handle pullback until the bear killer rally took the index futures to close at levels not seen in about two months. That’s why we call October the “Bear Killer”

In Asia, 10 out of 11 markets closed higher (Shanghai Composite +1.60%), and in Europe 11 out of 12 markets are trading higher this morning (DAX +0.7%). Today’s economic releases starts with Industrial Production, JOLTS, Consumer Sentiment, Atlanta Fed Business Inflation Expectations, and Treasury International Capital.

Our View: There were buyers on almost every dip yesterday and it was very easy to see. According to today’s stats, the ES has been up 18 / down 13 of the last 31 occasions, and the Monday after the expo is up 22 / down 9 of the last 31. I was right about going back up yesterday, but I had no idea the ESZ would take out this week’s 2014.75 high. Our view is to sell the early rallies and buy weakness. If the ES closes firm today I think it will be followed up by at least part of the day being up on Monday.

Download all of the October expiration stats here…

As always; please use protective buy and sell stops when trading futures and options.

• In Asia 10 out of 11 markets closed higher : Shanghai Comp. +1.60%, Hang Seng +0.78%, Nikkei +1.08%
• In Europe 11 out of 12 markets are trading higher : CAC +0.78%, DAX +0.70%, FTSE 0.74% at 5:30 am CT
• Fair Value: S&P -7.58 , NASDAQ -10.58 , Dow -96.10
• Total Volume: 1.7mil ESZ and 8.6k SPZ

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