After the ESH16 sold off 20 handles in the final hour of trade on Thursday, and Marko Kolanovic from JPMorgan warning of $1.1 trillion in S&P options expiring on Friday, the S&P futures sold off down to 2012 in Globex, down 11 handles. The futures opened up at 2021.75 on the 8:30 CT bell and rallied a few handles before falling out of bed. The first thing I noticed after the open was that the buyers were trying to push the futures but but the sellers were offering bigger size on every uptick.
The quarterly quadruple witching was always one of the busiest trading days of the year in the S&P pit. As brokers, clerks, and locals jostled for positions in the pit, it was a waiting game for the 8:30 bell to ring. Orders were flying into the S&P pit and there was financial excitement in the air. Big money made and lost in seconds. Back then we could see what was going on but electronic trading took that all alway. There is no more pushing and shouting, it’s all been reduced to the hum of the computer, and an 8:30 bell with few people jumping up and down. Friday’s trade did not include any of the above. What it did include was constant electronic selling. There were a few short covering rallies, but each one ran out of gas, and was followed by one sell program after another. The sells never let the S&P breath, and like Thursday, the selling picked up late in the day.
Bear’s Gotta Eat Too
The PitBull repeated to me something he has been talking about for months, and it is something a friend of his, Terry Laundry from the Magic T, told him for years, ‘the markets can not go up when the Dow Jones Transports are weak’ (Download Magic T’s Introduction to T Theory here). He also spoke to me about the weakness in APPLE; (APPL) -$2.95, or -2.7%, down to $106.03. Apple is down over 20% from its 2015 high. The Fed gave traders what they were looking for, but it all added up to the steepest loss since late August. Crude oil futures (CLF16:NYM) played its part too, falling -1.41% all the way down to $34.39, but the damage to the S&P futures (ESH16:CME) was clear. The ESH16 fell -1.47%, the Dow Jones futures (YMH16:CBT) fell 321 points, or just under 2%, and the Nasdaq 100 futures (NQH16:CME) fell 59 points, or -1.30%. And gain, a big part of the day’s losses were in the final minutes of the day. The S&P fell to 1991.00 late in the day leaving the futures down almost -2.5% on the week, on track for its first yearly decline since 2011, and its biggest fall since 2008.
In Asia, 8 out of 11 markets closed higher (Shanghai Comp +1.77%), and in Europe 10 out of 12 markets are trading higher (DAX +0.83%). This shortened week there are 19 economic reports, 6 note/bill announcements, and 4 note/bill auctions. Today’s economic calendar includes Chicago Fed National Activity Index, 4-Week Bill Announcement, 3-Month Bill Auction, and a 6-Month Bill Auction.
Thin To Win Enters the Picture
Our View: If you were buying the S&P on Friday and lost, you did so because you thought you were smarter then the markets. I am not saying that to insult anyone, but the expected weakness of the expiration was telegraphed to you. If you didn’t believe it, all you had to do was look at how the futures closed on Thursday and opened on Friday, none of it was positive. I am writing this on Saturday morning and I am not going to change the view regardless of where the ESH is trading on Globex or the 8:30 open. As I said on Twitter; today, tomorrow or Wednesday ‘thin to win’ will take over, and we could be back to 2070 this week.
Last week, none of the big investment funds let people take time off, that’s about to change big time. It is my guess that some traders take the whole week off, and by wednesday volume will drop 50%. Our view is to start looking for a low, start buying the pull backs or look for a cheap Jan call or call spread to buy.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 8 out of 11 markets closed higher : Shanghai Comp. +1.77%, Hang Seng +0.17%, Nikkei -0.37%
- In Europe 10 of 12 markets are trading higher : CAC +0.52%, DAX +0.78%, FTSE +0.94% at 6:15am CT
- Fair Value: S&P – 9.06, NASDAQ -8.80, Dow -93.82
- Total Volume: 2.11mil ESH and 15k SPH