The Asian markets closed mixed and Europe is trading modestly higher. While our call was correct yesterday, there was much more downside than we expected. No matter how big the gap up, be it 2 handles or 12, the sellers show up immediately. During the first part of yesterday’s selloff the S&P cash was not moving fast enough for actual sell programs. However, as the S&P worked lower and started hitting sell stops, the algorithms went on autopilot, pushing the futures down 13+ handles before the bounce began.
Most of the day’s 1.6 million E-minis were traded by 11:30 AM CT. After making the low at 1679.25 the ESU popped up to the 1681 level, hung there a bit, then started taking out buy stops and running buy programs on the way back up. The PitBull said our old song “take out the sell stops / take out the buy stops” has never been more true than it is these days. And you know what? He’s 100% right.
In the past, “slow” meant low volumes and narrow ranges, but that is not how it works today. At any minute an algo or a program can hit, distort the price action and move the S&P up or down. The big worry would be that one of these days the early sell program keeps going. Do you think the flash crash was really a one-time event?
Our view? Well you already know which way we think the S&P is going: up. It all comes down to one word — thrust — and right now there is none. In order to get the S&P up it has to go down first. That’s how the game is played.
We have a few numbers to get past and some Fed speak, but we see no reason why the S&P won’t blast through the upside buy stops. It’s just a question of when. Our overall view is for higher prices. Selling rallies and buying weakness has been the trade, but as I said, one of these days the algos are going to knock out the upside stops. What better time for that than during the mid-month rebalance and the August expiration!
As always, keep an eye on the 10-handle rule and please use stops when trading futures.
Lastly, please find an hour to look at the PitBull speaking at Amherst College. He has been my friend for a long time but I still love hearing him talk. “A Market Wizard Speaks: Marty Schwartz speaks at Amherst College, Spring 2013.” At Marty’s request, we are offering the full video free of charge to you and the world. Few people trade as well as Marty does. Even fewer are willing to share what they’ve learned.
- Morning headline: U.S. Stock-Index Futures Slip as Investors Weigh Stimulus
- Total volume: 1.6mil ESU and 7k SPU traded
- Economic calendar: MBA mortgage applications, producer price index, oil inventories, Fed’s Bullard speaks and earnings from Deere, Macy’s and Cisco
- Ned Davis Expiration Study for August 2013: http://mrtopstep.com/2013/08/expiration-study-for-august-2013/