In the past, a futures trader did not care what day of the week, or month it was. All he or she had to do was show up to the trading floor, jump in a pit, and start “bidding and offering.” If you were an off-floor trader, you had your quote machine and some charts up, and you called down to the trading floor to place an order. Soon there will be no more calling the floor to buy and sell futures, because as of July every futures pit in the CME Group will be shut down (minus the S&P pit), closed for good as of July 2, 2015.
The history of the high and mighty futures pits will be a thing of the past in 26 trading days. Many old time floor traders are still complaining about it, but with most pits well below their volume thresholds, they knew there is no way to keep the pits open; it is just not economically feasible. With the closures, a big part of Chicago’s history will disappear. The owner of Gibson’s Steakhouse once told me, “there were never better customers than the guys from the CBOT and the CME, dropping $10 grand for dinner was nothing.” Those days are gone too.
Bright Lights/ Big City Going Dim
In my first days on the floor, I often asked myself if I was ever going to get it. A few weeks after I started, I got it. I knew what pits to go to, who the clerks and brokers were, and I could not wait to take it to the next level. If your family didn’t have the bucks to buy you a seat, you had to work your way up. And when I look back, a lot of successful traders and brokers started out as runners and pit clerks. Today there are no runners on the floor, and there are not as many pit clerks as there used to be. It’s been a big transition going from open outcry to electronic trading, and the net result has been the demise of the open outcry style of bidding and offering in the pits. It was also supposed to make it a more fair, and even, playing field for the customer. Instead, what it’s turned into is a 24 hour-a-day “electronic casino.” Instead of making it more fair for the customers, the heads of the exchanges probably never knew what was going to unfold, or what the ramifications of electronic trading would eventually turn out to be. Now the exchanges are a place where algorithmic and program trading make up over 75% of the daily volumes and control most of the daily “swings”. Which brings me to the point of today’s email. The summer markets have arrived, and based on the low volumes, there potentially could be more “slip and slides”, but at the end of the day, all Tuesday’s sell off did was add more pain to the short sellers, and add more buy stops above the market.
In conclusion, nothing has changed. Its the same movie over and over, and the net result is always the same. The S&P sells off, volume picks up, and at some point the selling stops, and the very same algos that knocked the ESM down, reverse and use the buys stops and create index arbitrage buy programs to run the markets back up. There is one rule that overrides all other trading rules now: zero rates trump all. And don’t you forget it.
Dollar Highest Since 2002 vs. YEN / Shanghai Composite Down -6.5%
In Asia 6 out of 11 markets closed lower, and in Europe 7 out of 12 markets quoted are trading lower this morning. Today’s economic calendar starts with San Francisco Federal Reserve Bank President John Williams speech to banking supervision conference in Singapore, Jobless Claims, Pending Home Sales Index, EIA Natural Gas Report, EIA Petroleum Status Report, 7 Yr-Note Auction, Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on monetary policy in Helena, Montana.
The Pain Trade
Our View: Jeez Louise…what controls the S&P futures? Will there be two-way flow by the mutual funds at month end? After Tuesday’s sell off and yesterday’s rally, it feels like the ES may try another push up. I still think the risk is to the upside, but the 2120-2126 area is big. If the ESM can get above and hold, I think its off to new highs. Today we have the Pending Home Sales Report, the natural gas report, and the API. I expect it to be busy in the first part of the day and I think it will be up. You can take it from there…
S&P 500 Futures; Month End Water in the Bathtub
- In Asia 6 of 11 markets closed lower : Shanghai Comp. -6.50%, Hang Seng -2.23%, Nikkei +0.39%
- In Europe 7 out of 12 markets are trading lower : DAX -0.35%, FTSE +0.17%, MICEX +0.98% , GD.AT -1.38% at 7:00 CT
- Fair Value: S&P -2.19 , Nasdaq -1.37 , DOW -14.45
- Total Volume: 1.1mil ESM and 2.3k SPM traded
- Economic calendar: John Williams speaks, Jobless Claims, Pending Home Sales Index, EIA Natural Gas Report, EIA Petroleum Status Report, 7 Yr-Note Auction and Narayana Kocherlakota speaks.
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