After trading in a 21.00 handle overnight sideways range, the S&P 500 futures opened Friday’s cash session at 3490.00, up 14.50 handles and traded down to a morning low of 3483.75 before finding support leading for a rally up to 3508.50 just after 9:30 CT for the daily high. The S&Ps were unable to hold the high and instead fell back to 3484.50 for a late morning low.
The afternoon saw an attempt to push back over 3500 but price stalled out at that level and then strong, late-day selling came into the market in the final hour as the ES sold hard down to 3461.25 just before settling the day at 3462.25, down 13.25 handles or -.40% on total volume at 1.34 million, with 305K coming after 2:00 CT.
In the end, the overall price action was about playing the range throughout the day, then riding the strong sell momentum into the close.
In the Tradechat Room
A small 200 M to sell, still no conviction on money coming into or out of the market.
Focus today on Illinois and Indiana, the back to back states. Indiana has a bit more than half the population of Illinois so for per capita, you can multiply IN by about 2 which shows both states having about the same case load.
For new cases in total numbers, IL is about to take the lead over Texas, a state with about twice as many people. That rate of increase in both states is very alarming.
Deaths are also on the rise in both states with Indiana doing a bit worse. To compare, Texas’s 7-day average deaths is 65.3 on a per capita basis. Both states are there and the trend is not good.
To use our table, go to https://t2r4.com/cv19/views. Each column is sortable and if you click on a cell you will get a time-based chart of the state.
Wear your masks! Stay home! Take your Vitamin D!
Chart of the Day
1987 October 19th ‘Black Monday Anniversary’
Today is the 33-year anniversary of the 1987 Stock market crash which came to be known as ‘Black Monday’. That day the Dow Jones suffered its largest single-day percentage drop falling 508 points or 22.6%. The crash was preceded by a two-week 15% decline. I remember the days leading up the crash as several well-known traders and hedge funds that used my S&P continued to sell the ‘big’ S&P right up to and into Black Monday. Louis Bacon’s fund Moore Capital, Bruce Kovner’s Caxton fund, Paul Jones from Tudor and Elaine Garzarelli were all known for calling the October 1987 market crash. My desk operation was part of the rotation of S&P desks that all of these well-knowns used. Tudor would sell 500 to 800 SPZ through his own desk and then use my desk and a few others, then Moore Cap and Caxton and the Lehman orders would follow. My desk also did a company business called Cap Com that cleared the Royal Families, personal investment trust for King Fahd. During the height of Black Monday, Cap Com gave me an order to sell 2,000 SPZs and that order dealt a crushing blow to the S&P that was already tumbling sharply. Back in 1987, if the Dow was down 150 points the big firms were not allowed to do S&P index arbitrage. Initially, they blamed the 1987 crash on program trading that centered on the interplay between the stock markets and index options and futures market but in reality, the trading mechanisms in financial markets were not able to keep up with such a large flow of sell orders. When I started selling the 2,000 the only bids in the S&P pit were for Bear Stearns and Morgan Stanley. Despite the rule not to do the S&P index arbitrage the premiums between the S&P (cash basket) and the futures were so wide that the prop trading desk was doing the trades manually. Every time I hit a 200 or 300 lot ‘program bid’, Bear and Morgan would hit the S&P cash baskets of stock and the S&P just crumbled. Looking back, it had to be one of the scariest trading days of my career, excluding the May 6, 2010 flash crash. I am not saying that this is going to happen again but clearly the markets are signalling increased volatility in the coming weeks and several CME clearing firms have already started to raise margins requirements. I suspect more firms will be doing the same.
Our view, most recent patterns suggest that after a sell-off like last Friday the S&P ‘bounces’. That said, I think once the S&P washes out the weak shorts it turns back down. While I am a big follower of ‘patterns’ I have not been strong enough in pointing out the late-day selling that has been occurring for the last several weeks. This type of selling is not a good signal. It looks to me that it falls in the area of ‘risk-off’ and with the Presidential election only 15 days or 12 trading sessions away and a real possibility that the results will take 10 days after the election to know, I think there is ‘reason to be concerned’. As my good friend Hayes told me a few years ago ‘you can trade the long side if you like but you should sell some calls’. Our lean, as I said a few days ago I think the main theme right now is to sell the 40 or 50 handle rallies. That doesn’t mean you can’t buy weakness but it has to be done carefully.
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