Sometimes when everyone is caught in the same direction the S&P moves the other way. This is nothing new, but with the help of hundreds of Greek headlines, the news algos that pushed the S&P futures down to a Globex low of 2034.25 also helped push the futures all the way up to the 2070.50, up over 36 handles off its overnight low. On the 8:30 CT time the ESU15 opened 15.25 handles lower then took off to the upside.
The newspapers and CNBC will say the rally was technical, or some stupid thing like that, but the reality of the early rally was much simpler. With nearly 400,000 ESUs traded before 8:30, most of the selling was used up by the time the S&P futures opened. When this happens, and knowing the algos have already run the downside sell stops, the algos and HFT trading programs go in the direction where the most stops are. That, my friends, was to the upside.
After “squeezing” out the shorts into the rally, the ESU15 started to reverse back down. Again, TheStreet.com and CNBC will have some talking head say the selloff was news related, but in reality it was just the S&P futures doing what they do best: running the buy stops and running the sell stops.
Pre-cash close, a trader from StockTwits hit me up asking:
esboomer: @mrtopstep O Wise One do you think we may see an upside stop run into the close?
And I responded by saying:
03:20:47 TRADINGDATA2: (driley) they goota do the late pop and drop.
But I also added:
03:55:27 TRADINGDATA2: (driley) Not going out on the highs but going out firm. My gut tells me we go higher tomorrow…
In the final 20 minutes of the day the S&P futures rallied 6 handles, potentially setting up higher prices for today. Like I said in the MrTopStep trading room: I think we are going back to 2090 and fast…
OIL DOWN 8%
While the rest of the world was looking at the possibility of a Greek exit from the Eurozone, the euro crude oil futures (CLQ15) were getting demolished. It’s my guess that as world powers try to reach a nuclear accord with Iran, the country is getting ready to flood the markets with cheap oil. Yesterday oil saw its largest down day in over 3 months as China stocks continued to tumble. The selloff in Chinese stocks has investors worried about lower oil demand. The combination weighed heavily on the oil markets all day. Additionally, the US oil producers said they were adding new rigs, and Iraqi oil production was larger than expected.
In the end it was a perfect storm to the upside in the S&P futures, and a perfect storm to the downside in crude oil. Let’s see who wins today…
In Asia 6 out of 11 markets closed down, and in Europe 8 out of 12 markets are trading lower this morning. Today’s economic calendar includes International Trade, Gallup US ECI, Redbook, JOLTZ, 3 Yr-Note Auction, Consumer Credit, Treasury STRIPS.
BUY U.S / SELL ASIA AND EUROPE
Our View: It’s hard to say what’s going to happen next. Greece and China are melting down. The weakness in Europe should push money back into the US stock markets, but it looks like the only buyers were the ones getting squeezed out. If you are a momentum trader, yesterday’s close should project higher prices today. Buy stops are building up above 2069, and basically run all the way up to 2094. Our view is to sell the rallies and buy weakness, I think we are going back up.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 of 11 markets closed lower : Shanghai Comp. -1.29%, Hang Seng -1.03%, Nikkei +1.31%
- In Europe 8 out of 12 markets are trading lower : DAX -0.62%, FTSE -0.26%, MICEX +0.18%, GD.AT +2.06% at 7:00 am CT
- Fair Value: S&P -8.40 , NASDAQ -9.77 , Dow -95.31
- Total Volume: 1.97mill ESU and 5.8k SPU traded
- Economic calendar: International Trade, Gallup US ECI, Redbook, JOLTS, 3 Yr-Note Auction, Consumer Credit, Treasury STRIPS >
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