Yesterday was about the FOMC as trading was at a snail’s pace until the announcement at 14:00. We had maybe 10 or so programs before then so all the programs detected were mostly afternoon trading and the close. The reveal at 15:50 was 1B to sell and matched are early data lean. That 5-minute candle did give a decent 3-point move to the downside but the quick pairing and the bullish response from the Fed news had the markets staying elevated.
Another 160+ program day on Stt bursts with a slight negative position at the end of the day with 3B dollars more in sell programs than buy.
Spygate is now part of the MIM trading groups’ data.
As Europe and Brazil make headlines for a 2nd wave, the US is still fairly neutral but Utah is starting to get a little warm. The US vaccination rate is now 2.5M/day, a number that needs to quadruple. At that rate, it will take another 5 months to reach 75% double vaccinated.
Wear your masks! Stay at least 10 feet behind someone wearing a mask! (Particularly in a checkout line) Stay home! Take your Vitamin D!
Chart of the Day
Technology-stock valuations are a far cry from what they were in the 1990s dot-com era, according to Jim Paulsen, Leuthold Group’s chief investment strategist. He compared forward price-earnings ratios, based on projected profit, for the S&P 500’s Information Technology Index and the U.S. equity benchmark in a report Tuesday. Tech shares’ forward P/E was 19% higher as of Tuesday, according to data compiled by Bloomberg. The premium matched an average since 1990 and was far below a record of 129%, set in March 2000. “There is potential for tech valuations to climb further,” Paulsen wrote.
March Quadruple Witching Options Expiration
With the two-day Fed meeting now in the rearview mirror, it’s time to start talking about the ‘March Quadruple’ options expiration. This used to be one of the busiest trading days of the year but electronic trading has solved that problem. Today most of the big prop trading firms make most of the options pricing through trading programs that are directly connected to the exchange data centers. Firms like IMC, Citadel, Susquehanna and many other large firms’ pricing bots make the market and the firm books and locks in a profit with futures. It’s is not like the old days in the cattle pit where a broker would quote up a market and the locks in the pit would trade off it. There was slippage back then and there is no slippage today. The bot makes options markets for thousands of spreads in every futures and options market and never misses a beat. There are no desk mistakes because it’s 100% automated through the CMEs trading and matching systems. Essentially, the prop trading firms are printing money. I am not sure if we should constantly be thinking about that but the next time some firm offers you free commissions, explain to them that they are not free!
Ned Davis S&P Cash Study for the March 2021 Options Expiration
Stats can be a great tool but like anything, they do not work all the time. While you may not pay attention to the stats, I think it’s a good thing to know.
According to the S&P cash study, the Thursday before the March expiration has been up 17 / down 20 of the last 37 occasions. Expiration Friday has also been up 17 / down 20 of the last 37 and the Monday after has the S&P cash up 12 / down 9 of the last 21 occasions.
I have to admit that the stats are not overly exciting but at 3965 the futures are only 35 points away from ESM 3900. The March ES traded all the way up to 3986.25. So my ES 4000.00 was not far off. And the Dow closed above 30,000 for the first time.
Our view, open interest in the SPX at the 4000 line is 20,000 calls and 37,000 puts. That doesn’t include the OEX or the S&P 500 options on the CME floor. The bonds have gotten destroyed but the S&P and Nasdaq continue to forge higher. It’s the same pattern every day, early sell-off then bounce. Our lean, you can sell the early rallies and buy the pullback or just be patient, go with the trend and buy weakness. If the ES should close above 3880 today I feel strongly 4010 could trade by Friday. If not, we just have to wait. Oh, yea, 20 to 30 point drops should make for good buy opps.
Danny Riley is a 39-year veteran of the CME trading floor. He ran one of the largest S&P desks on the floor of the CME Group since 1985.
As always, please use protective buy and sell stops when trading futures and options.
Disclaimer: Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. Decisions to purchase or sell as a result of the opinions expressed in the forum will be the full responsibility of the person(s) authorizing such transaction(s). BE ADVISED TO ALWAYS USE PROTECTIVE STOP LOSSES AND ALLOW FOR SLIPPAGE TO MANAGE YOUR TRADE(S) AS AN INVESTOR COULD LOSE ALL OR MORE THAN THEIR INITIAL INVESTMENT. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS