Premium OP: Futures Down 10% in 2 1/2 Days

Market Review

The fate of the S&P was sealed on Friday’s close and over the weekend as hundreds of negative coronavirus headlines hit the tape. The final headline was when Italy’s death count surged to 366 and 16 million people in the coronavirus-hit north are quarantined. I could do a bunch of headline stuff but it would just be repeating what’s already been released in the news. What I can say is that the S&P futures (ESH20:CME) is now down 17% from its February 19th low and has fallen 587 handles in 12 1/2 sessions, that’s an average drop of 46.2 handles a day! Last night the ES traded down to 2819.00 which was limit down at -5% and then started to bounce up to the 2840.00 level. I put something out on Twitter last night to buy limit down but I want to clarify something for anyone that saw the post. I started in the S&Ps in 1984 and on almost every occasion when the futures went limit down and there were ‘thousands of futures offered’ someone either bought all the offers or the offers were pulled and the futures went straight up and on those rare occasions that they did stay limit and reopened down they always rallied. Will that change now? It could but until it does, I’m sticking with that rule.

Our view, the bulls are now starting to wake up and smell the coffee. When you do the math they are still way ahead but it’s now a question of how much pain they can endure. If you take the ES 666 March 2009 credit crisis low to the 3397 high the ES has rallied almost 490% so down 17% off its high probably isn’t enough of a shock but this is not over.  Our lean, I still think we still see lower prices but I also think the odds of a big short-covering rally are definitely in the cards. Will the rally hold? No, but as I have always said ‘the ES tends to do the opposite of what most people want it to do when they want it’ and with everyone too short a big pop can not be ruled out. 

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MiM

What a change from just 2 days ago. Friday had a strong close (weak day) moving 80 points up from the lows leading to optimism over the weekend. As we know now, that optimism is totally gone and we hit down limits on futures during the Sunday Globex session.  

This AM’s MOO is going to be crazy.  Funds are going to be forced to sell.  Blown up leveraged trades and hedges are going to be unwound.  Margin calls will be enforced. It is going to be an ugly day with headlines lagging the market action and feedback into more action.  A perfect storm. The cash market will be stressed in operation as rates are adjusting too fast. 

Get the skinny when we get it.  Join the MiM. 

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Globex

S&P 500 Futures:  Global Intervention Fails To Quiet The Sellers

On Globex, the #ES traded up to a high of 3037.00 early Thursday night and sold off down to 2906.25 just before Friday morning’s jobs report. The first print on Thursday morning’s 8:30 CT futures open was 2926.75. From there it pulled back down to the 2920 level then shot up to the 2944.00, sold off down to a new low at 2911.25 and then rallied up to new highs at 2976.00 at 9:50 am CT. And that’s when I put this out on IMPRO: “Dboy :(10:59:03 AM): I think we have seen the early high”, and the ES dropped to the 2926.00 area at 11:18 and then popped up to 2935 then back down to the 2927.50 area then back up to 2955.00 at 12:40 CT. The ES pulled back down to the 2945 area then traded up to the 2956 area and pulled back down to the 2941.50 area. After a few more pullbacks and rallies the ES traded up to 2972.00 at ? o’clock and at 1:53 traded all the way back down to 2902.00, back up to 2911 then back down to a new low at 2898.00. After the low the ES traded up 17 handles in 3 minutes to 2928 at 2:  

At 2:00 the ES traded 2905.50 as the early MiM showed $1.2 billion for sale and then the futures rallied up to 2934. At 2:30 the ES traded 2939.00 and on the 2:50 cash imbalance, the ES traded 2956.00 as the final MiM FLIPPED to $450 million to buy. The ES traded 2978 at 2:58. On the 3:00 cash close, the ES traded 2968.00 and settled at 2963.75  on the 3:15 futures close, down 58.75 handles or -2% on the day.

In terms of overall tone, it was horrible until the VIX dropped from 54 down to 41 and the ES futures rallied 85 handles in the final 45 minutes of the day. In terms of the day’s overall trade, total volume was decent at 3 million with 800,000 coming from Globex making total day volume 2.8  million contracts traded on the day session.  

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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.}