The S&P 500 futures did pretty much like we expected it to do yesterday; it sold off. While we did say there were no rules when it comes to trading the S&P, MrTopStep actually lives by certain trading rules, and the one we called for yesterday was that the “S&P tends to go sideways to down after a big up day,” and that’s exactly what happened.

The Dow futures (YMM15:CBT) fell 104 points to 17885 and the S&P futures (ESM15:CME) closed down 11 points or -0.50% while the Nasdaq (NQM15:CME) and Russell futures (TFM15:ICE) gained +0.20%. The day started out with Asia down and Europe modestly higher, but not long after the S&P futures opened at 8:30, the ESM15 started trending lower, hitting sell stops and running S&P index arbitrage sell programs. While we expected the S&P to be weak, we didn’t think it would end up down 8 handles at its low.

While the Federal Reserve may have dropped its promise to remain patient before taking interest rates higher, most traders think that will open the door to higher interest rates this year. During Wednesday’s Federal Reserve meeting, Janet Yellen indicated that the central bank is in no hurry to raise rates but will remain data-dependent. Those statements sparked a nearly 50-handle rally in the S&P 500 futures, but what happened after the big rally yesterday was very clear to see. All the buying power had been used up during Wednesday’s rally, leaving the MrTopStep trading rule that the S&P tends to go sideways to lower after a big up day. Clearly Janet Yellen’s comments caught many traders off guard. Yesterday the dollar continued to rally, with the euro falling over 1.5%, down to $1.0642. The S&P 500 energy index fell 1.7%, with shares of some energy companies posting some of the largest losses on the day, while gold futures rose 1.5% to $1169.10.

Over a year ago MrTopStep was a guest on a Benzinga webinar where several professionals were brought in to talk about gold. At the time gold was struggling to hold above $1200.00s and higher. When I was asked about my view on gold, I said then what I’ll say again now: it’s the most out-of-favor commodity on the board. I know people will argue with that, but with so many other products and so many other markets moving around, gold has lost its luster. I’m sure if there is some type of flight-to-quality trade in the future gold will move higher, but until then it’s going to be two steps up and three steps back.

Today is March quadruple witching. In the old days on the trading floor the S&P the quarterly quad witch was one of the most active trading periods. Today the algorithmic programs that attack the futures markets have taken the vig out of the trade. I remember picking up the phones and doing thousands of futures in the first 45 minutes, but today all traders wait for is where the cash settles. It’s a changed game, in many respects a more fair game, but while the old floor traders and brokers used to rip us off, now the computers rule the game.

In Asia 6 out of 11 markets closed higher and at 6:00 CT in Europe 11 of 12 markets are trading higher this morning. Today’s economic calendar: March Quadruple Witching, Atlanta Fed Business Inflation Expectations, Atlanta Fed President Dennis Lockhart speech on the economy and monetary policy in Athens, Ga., and Chicago Fed President Charles Evans on a panel discussing risk management near the zero lower bound, in Washington.

Our view: Generally during a quad witching the S&P is busy in the first hour and the last hour. While the futures sold off yesterday, we think they’re going back up today. It’s been a long week of big ups and downs, and what we don’t want to do is give away some of the profits we made during the week. We lean to selling the early rallies and buying weakness with tight stops.

I hope you had a good week, traders. No one ever said this was easy, but in my heart of hearts I still believe that if you do your work and stay with it and not over-risk, you have a good chance of beating the machines. It’s those days when you’re not trading well that you get up and walk away from the screens. Live to fight another day.

S&P Cash Study for the March Expiration

“The S&P, the Fed and a Big Old Squeeze Job”

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

• In Asia 6 out of 11 markets closed higher: Shanghai Comp +0.98%, Hang Seng -0.38%, Nikkei +0.43%
• In Europe 11 of 12 markets are trading higher: DAX +0.87%, FTSE +0.01%, MICEX +0.45%, Athens GD.AT +2.61%
• Fair value: S&P -8.23 , Nasdaq -8.22, Dow -85.80
• Total volume: 1.49mil ESM and 6.8k SPH traded
• Economic schedule: March Quadruple Witching, Atlanta Fed Business Inflation Expectations, Dennis Lockhart and Charles Evans from the Fed speak.

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