The S&P futures again never ceased to amaze. After a ruckus day of big ups and downs on Tuesday, Wednesday’s trade had big moves in both directions. In the beginning of the day the S&P 500 futures (ESU15:CME) opened at the 1913.50 level and then fell into a tail spin to the downside falling 38 handles in the first three hours of the session to 1975. With the NYSE warning of ‘heavy volume’ on the open, we had a feeling there was going to be some type of big program, and sure enough, they fell into a giant sell program and couldn’t sustain a bid throughout the entire morning as the average five minute range accounted for eight handles. Once the futures broke the Euro session lows heading into the Chicago lunch hour, and without any real two-sided trade during the morning, it looked like it could again get ugly. Afternoons have not been kind to this market since the selling began last week when market-on-close orders began to stack up to the sell side in excess of $1-2 billion dollars leaving bulls without a chance. However yesterday found a low, and buy programs started just after 11:30 CST. The index rallied 68 handles in 3.5 hours pushing the futures back near the 1950 area. The MOC came out a modest (by comparison) $600 million to sell and buyers pushed it into the close.
The MOC came in at the smallest to the sell side since this selling began last week, giving us the idea that sellers may be letting off the gas pedal for now. All in all, yesterday ended up being one of the largest point gains in history, as the DJIA finished up 619.07 points, the third best overall point gain in its history. For the ESU15 the cash session highs this week have been 1950.75, 1948.50, and yesterday 1943.00, there has been much resistance leading into that 1950 area and we have a feeling there may be some buy stops above that could send it back to 2000 quickly. It’s also worth noting that the S&P futures have placed a higher low in each of the regular-trading-sessions this week.
Yesterday I noted in the MrTopStep IM Pro room, and also on Twitter, that the chatter in my ear was that some large funds were beginning to cover some shorts yesterday, including one fund with 22 billion dollars of assets under management which bought about 30,000 contracts yesterday.
Heard across the wires yesterday was that the WSJ’s Hilsenrath is running a story that implies that the Fed may come out backing more stimulus, at the same time Bridgewater’s Ray Dalio thinks QE more likely than a hike, meanwhile the Fed’s Dudley spoke saying “The case for raising interest rates in September is less compelling because of international financial and market developments”.
Beware of Dead Cat
Since this sell off began last week, there have been some anomalies not seen since 2011, including volume in the S&P futures reaching in excess of 5 million in a single day, and the CBOE’s volatility index (VIX) reaching the $50 level, amongst other stats. Back then in the 2011 selloff, the index futures suffered nearly a 300 handle decline from the July high to the October low, which then was nearly 20% as the Standard & Poors downgraded U.S. debt, European liquidity issues and MF Global meltdown. Now, in 2015 we have our own set of issues including a FOMC that seems to be potentially conflicted concerning a rate hike, and now it has been suggested by some that actual stimulus is needed, also the Chinese decline could get much worse, and the fact that the U.S. is entering an important political season has not been widely talked about yet. I’m not saying there is a perfect storm but there may be a healthy storm of uncertainty brewing.
Observed on the chart below is a comparison of 2011 with this current year. Noting a high in the summer followed by late summer sell off that looks very similar to what we are now seeing including what appears to be a bottoming process however in 2011 while it did make an August low the upside was limited and the lows were revisited in October.
S&P 500 FUTURES TAKE A BEATING BUT KEEP TICKING
The S&P has taken a beating since last week. You can see as the volume picked up but so did the level of MOC selling. One of the things we have constantly written about is how the MOC buying switched to selling on the last trading days of the March or the last trading day of the first quarter.
High Low Close Volume MOC
Monday Aug 17 2100.50 2074.75 2099.25 1,292.404 $720 Mil to Sell
Tuesday Aug 18 2103.75 2090.25 2090.25 1,333,037 $730 Mil to Sell
Wednesday Aug 19 2098.00 2066.50 2072.25 2,287,294 $725 Mil to Sell
Thursday Aug 20 2077.75 2024.50 2025.50 2,577,298 $1.6 Bil to Sell
Friday Aug 21 2029.00 1967.25 1971.50 4,160,367 $2.9 to 3.3 Bil to Sell
Monday Aug 24 1964.75 1831.00 1871.20 5,243,619 $1.6 Bil to Sell
Tuesday Aug 25 1948.50 1860.00 1872.75 3.652.394 $2.9 Bil to Sell
Wednesday Aug 26 1943.00 1850.00 1938.00 3,652,294 $600 Mil to Sell
In Asia, 11 out of 11 markets closed higher (Shanghai Comp. +5.34%), and in Europe 11 out 12 of markets are trading higher (DAX +3.09%). Today’s economic calendar includes the Jackson Hole Symposium, GDP, Jobless Claims, Corporate Profits, Pending Home Sales, EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 7 Yr-Note Auction and earnings from DG, TIF, GME, SIG, PDCO, BURL, SWHC, SJM, ARO, ULTA, SDRL, MIK, BEBE, ADSK, SPLK, TD, FRED, FLWS, MOV, OVTI, VMEM, VEEV, SPWH, CAL, ZOES, DEST, and DXLG.
S&P LEADS WORLD MARKETS BACK UP
Our View: It was 1850 vs 1950, and 1950 won. After trading as low as 1875.50 in the first part of the day yesterday, the S&P made a higher low and then took off to the upside all the way up to 1943.00, a 68 handle rally off the low, and traded all the way up to 1963.75 in Globex, up 90 handles from yesterday’s low. Again, I can honestly say I have never seen the swings we are seeing today. The S&P has been completely run over by the algorithmic and HFT trading programs. A fellow trader FVT thinks I am right. He said back in 2011’s 20% sell off and even in the 2008-09 crash, that while the markets were moving big we never saw 100 handle moves and reversals as fast and violent like we have over the last few sessions, and I have to agree. That said, yesterday’s move back up in the face of the Asian and European weakness shows the S&P remains very resilient. It did not go down as much as Asia and Europe, and it has taken a leading role in pushing the global markets back up this morning. Our view is to sell the early rallies and buy weakness. I think the ESU could go as high as 1983-1985, but it may have to pull back before it goes back up there.
And always remember to use stops when trading futures and options…
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In Asia 11 out of 11 markets closed closed sharply higher : Shanghai Comp. +5.34%, Hang Seng +3.60%, Nikkei +1.08%
- In Europe 11 out of 12 markets are trading sharply higher (6:00 am CT) : CAC +3.05%, DAX +3.09%, FTSE +2.44% at 6:00 am CT
- Fair Value: S&P -2.90 , NASDAQ -2.11 , Dow -29.88
- Total Volume: 3.5mil ESU and 17k SPU traded
- Economic calendar: Jackson Hole Symposium, GDP, Jobless Claims, Corporate Profits,Pending Home Sales,EIA Natural Gas Report, Kansas City Fed Manufacturing Index, 7 Yr-Note Auction.
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