The financial futures market went from good to bad Friday with the S&P 500 futures falling falling 1.1% and the Dow and Nasdaq futures falling 1.5% each. With stocks down across the board in Asia and falling in Europe, hundreds of thousands of financial workers across the globe were locked out of their Bloomberg terminals, causing unprecedented problems for big and small trades across the globe. The “glitch” put the Bank of England and European Central Bank on alert, and saw a £3bn auction of UK government debt postponed for hours.
Many traders we spoke to said they thought Bloomberg was part of some type of cyberattack, but the firm blamed the outage on a “combination of hardware and software failures in the network,” dismissing the suggestion of cyberattacks. The outage raised big questions about the financial community’s dependence on the system. The outage on top of the fall in global markets caused a “sell now, think later” type of trade.
Rollin’ and a-Tumblin’
Sometimes things tend to feed on themselves, and that was definitely the case on Friday. It wasn’t any particular economic or earnings report, but several things at once. In the early going Asia was weak and that weakness rolled into Europe with the DAX down over -1.5% early on. Then Greece went from down -1.3% to down -3%. Here in the US the S&P futures (ESM15:CME), which saw big MOC selling, started working lower. At 5:00 am CT the S&P futures were down over 14 handles (points). After the open the ESM15 rallied a few handles and then got hit by wave after wave of liquidation and computer sell programs. As more headlines hit the tape about a possible Greece default, oil fell and the dollar rallied, taking gold up with it.
Here are a few of the things traders were looking at as the US stock market tumbled:
- China “balloon risks” and China allowing fund managers to loan stock for short selling to increase share supply.
- The Athex, Greece’s main stock market, fell 2.5% or down 11% on the year and over the last 12 months down over 41%, making it the worst-performing index.
- The yield on the Greek 10-year note closed at 12.49%, a two-year high, while two-year yields were at 26.28%, close to their highest level since being issued. An inverted yield curve, where shorter-term debt yields more than longer-dated bonds, signals investors foresee a very high risk of default.
- German Bunds hit a record low of 0.07% as traders bought bonds and sold stock.
- American Express (AXP) closed down 4.4%, hurt by the strong dollar, and Advanced Micro Devices (AMD) Inc fell -10% as it exits the server business.
Water in the Bathtub
I have been saying that there has been some type of change going on and yesterday seemed to fit. A manufacturing hiccup in Asia, the never-ending saga of a possible Greek default and an S&P 500 futures that could not take out 2100 and hold. Friday’s volume did pick up, but the big question is how many people sold into the decline and how many have gotten out after the 11-handle rally later Friday and this morning’s +13 handle rally.
In the end the term that best fits the overall trade is the PitBull’s “water in the bathtub.” Push the futures up and get traders long into the rally and then push the water the other way down into the sell stops. I went on the headset after the open on Friday and told everyone in the MrTopStep trading room that the S&P was not going to crash, but I have to admit the reversal was a great example of how things can go from good to bad in the S&P 500 futures.
In Asia 9 out of 11 markets closed lower, and in Europe 9 out of 12 markets are trading higher this morning. This week has a low level of economic reports and a high level of earnings reports. Next week has a total of 13 economic releases which include money supply and the Fed balance sheet, take them out, and there are only 11 eco reports, 11 T-bill or T-bond auctions or announcements and no Fed speak. Today’s economic and earnings calendar includes Chicago Fed National Activity Index, a 3- and 6-month bill auction, and earnings from BTO, CHKP, HAL, HAS, MS, NVR., ATC, BRO, CNI,ELS, FTNT, HXL, IBM, PKG, RMBS, SANM, and WWD.
Our view: Sometimes things go round in a circle and when it comes to the S&P that is how it’s working. When the S&P was selling off on Friday and everyone was again talking stock market crash, I was again thinking reversal up. I was also thinking that the PPT won’t let the markets crash. I know many say the PPT doesn’t exist, but I will stake my nearly 40 years on the floor to say it does. Are there a bunch of government bean counters in a back room in Washington? I doubt that, but at some level within the federal government and the Federal Reserve there is some type of body that can jump in to support the markets when the markets fall off and liquidity gets low. I know that sounds crazy to some, but I’m convinced that’s how it works.
As for today, the S&P has rallied nearly 25 handles off Friday’s low. It’s going to be hard to say buy it on the open. That leaves us with selling the early strength and buying weakness. It’s my guess with the low level of economic and earnings news that the S&P rallies again after it pulls back this morning.
“China and Greece Throw Cold Water on the S&P”
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed lower: Shanghai Comp. -1.64%, Hang Seng -2.02%, Nikkei -0.09%
- In Europe 9 of 12 markets are trading higher: DAX +1.62%, FTSE -01.8%, MICEX +0.72%, Athens GD.AT +0.86% (at 6:00 am CT)
- Fair value: S&P -7.09 , Nasdaq -8.85 , DOW -83.61
- Total volume: 1.8mil ESM and 15k SPM traded
- Economic schedule: Chicago Fed National Activity Index, 3- and 6-month bill auction.
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