ES 06-15 (5 Min)  4_21_2015

If you thought it was going to be easy buying and selling S&P and crude oil futures for a living … guess again. The folklore of traders putting their trading jackets on and heading to the S&P pit, or for that matter, any other futures pits to pull in tens of thousands of dollars by lunchtime is about to become just that, a tale of a bygone era. While the final date for closing the futures pits is July, most of them have been closed for years with many of the traders being run over by computerized buy and sell programs that can overwhelm humans with their volume and speed.

When I look at the overall price action of the S&P, and many of the other futures markets, they don’t look at all like they used to. It wouldn’t matter if the pits were open or closed, things have changed and will never return to where they were.

Four months into 2015 and into the sixth year of the bull market, the S&P is showing signs of wear and tear. It just doesn’t have the same level of buying power we’ve seen in past years. Like 2013’s returns, 2014’s returns were less, as will be the case in 2015. Clearly the continued talk by the Fed of raising rates and Europe’s quantitative easing program have pushed traders to the other side of the pond. This has left the S&P in some sort of limbo. Stuck in a low-volume grind, the S&P sells off on larger volume and rallies on extremely low volume. For several weeks I have pointed out historically low levels of volume in the futures markets, particularly the S&P 500 futures. With an all-time record volume of 6.9 million contracts in one day, the S&P now struggles to do 1 million contracts a day including Globex volumes. Structurally something has changed!

Rockem Sockem Robots

Traders may think it’s funny when we talk about algorithmic trading and how these programs are geared to trade the Globex trading ranges, run stops above and below key pivot prices and search for buying sell stops. For me and many of the traders in the MrTopStep trading room, it’s no joke. While we are a small section of traders, everyone in the room sees the same thing. Maybe it’s become more distinctive seeing the stops run up and down because of the low volume, but the pain that it inflicts on retail traders is more than clear to see. There is no doubt that the news algos stretched out the S&P too far on during Friday’s selloff and there is no doubt the lower volumes on the upside exaggerated the 33-handle rally back. My question is without algorithmic trading do you think that the S&P would’ve traded down as far as it did last Friday? And for that matter, do you think that the S&P could rally 33 or 34 handles from Friday’s low to midday yesterday without the help of algorithmic trading? My guess is your answer will be yes, but at the end of the day it doesn’t matter what we think because with program and algorithmic trading programs making up 70% to 80% of the daily volume we only make up 20% of the total vote.

In Asia 7 out of 11 markets closed higher, and in Europe 8 out of 12 markets are trading higher this morning. Today’s economic and earnings calendar includes Redbook, 4-week T-bill auction and earnings from BTO, ARMH, ABG, BHI, EAT, CP, CS, DD, GCI, GPC, HOG, ITW, JAKK, KSU, KMB, LMT, MAN, MLNX, EDU, PLD, SAP, SBNY, SNV, AMTD, TCK, TRV, UA, UTX, VZ, WIT, ATC, AMGN, BRCM, CMG, EWBC, FTI, ILMN, INFN, IBKR, IRBT, MANH, NBR, PFPT, SYK, SMCI, URI, VASC, VMW, YHOO, and YUM.

Our view: Well, selling the early rallies didn’t work. Neither did selling any rallies all day. After the ESM15 started going up after the open, the buying never actually stopped until the MiM started showing for sale and the futures sold off a little late in the day. Had there not been big overnight volume in Globex the ESM never would have made 1.1mil volume.

This morning we have one eco report and a ton of earnings both before the open (BTO) and after the close (ATC). Let’s face it, the current thrust in the S&P is mainly coming from the stops, and after Friday’s letdown I doubt very highly that all the shorts have covered. There have been several attempts at taking out the stops above 2100.00 into the contract highs at 2109.75, but so far it’s been all “false starts.” While the bears may see this as important, the longer the ES sells off and races back to S&P 2100.00 the more likely the algos oblige.

S&P Kung Fu Fighting

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

  • In Asia 7 out of 11 markets closed higher: Shanghai Comp. +1.82%, Hang Seng +2.79%, Nikkei +1.40%
  • In Europe 8 of 12 markets are trading higher: DAX +0.59%, FTSE -0.15%, MICEX +1.01%, Athens GD.AT -3.18 % (at 6:00 am CT)
  • Fair value: S&P -6.80, Nasdaq -8.32, DOW -81.40
  • Total volume: 1.1mil ESM and 4k SPM traded
  • Economic schedule: Redbook, 4-week T-bill auction

[s_static_display]

Tags:

No responses yet

Leave a Reply