Things kept rolling along Tuesday with the S&P futures leaping 75 points from its previous close. The Shanghai Composite continues its slide, down -7.63% but Europe’s leading index markets the CAC +4.14%, DAX +4.97% and FTSE +3.10% were all up sharply. The ESU15:CME started moving higher on Mondays nights Globex session and continued to rally all the up to 1947.25 before pulling back slightly before the 8:30 CT futures open and then falling roughly 35 handles throughout the day until the bottom fell out in the last hour as the MOC came out 2.9 billion to sell and the index futures lost over 60 handles in the final hour alone.
REVERSE THE REVERSE
The last few days in the S&P futures have been nothing short of extraordinary. After months of passing above and below ESU15 2100.00 the negative global news finally delivered a knockout punch to the downside. As you can see by the chart below there continue to be some very large percentage moves. After Monday’s -4% drop the ESU15 ‘rocketed’ higher in Globex last and into yesterday’s day session but slowly gave up some of its gain as the day dragged on. At 1:40 CT the ESU15 was trading 1917.00 up 46 handles or up 1.5%, with total volume of 2.6 million e-mini S&P contracts traded. It was a busy day of ups and downs but not nearly close to the wild action and volume of last Friday and Monday’s trade. That said once the ESU15 started breaking down through the 1920 level things again started to accelerate to the downside, hitting sell stops going through the 1910 level all the way down to the the pit low at 1860.00 and then down to 1850.50 in Globex, nearly 100 handles off its day high and before it reversed higher making a Globex high of 1908.75 at 6:00 AM CT, then 60 handles from the overnight low.
The New Normal is Not A Good Sign
The ‘public’ has always thought that the 19 to 21 level as key resistance in the CBOEs ‘fear gauge’ the VIX. Over the course of the last few years the Vix futures (VXU5) and options volume have soared as more investors flock to the contract. On Mondays open traders could not get VIX quotes for over 30 minutes and on the trading floor of the CME in the S&P options none of the market makers would make prices unless they were $20.00 wide quotes as $1.2 trillion in market cap was wiped out. There was so many quotes and big volume being pushed through at once that some screens were whiting out. The speed of the VIX’s sharp move higher didnt give traders much of a chance to move. Going into the close on Friday the VIX was 23 and then shot up to high of 28 on the close and shot up to 53.29 at the height of Mondays sell off pushing it to the highest levels since 2011.
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 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 1972.75 3.652.394 $2.9 Bil to Sell
In Asia, 6 out of 11 markets closed higher (Shanghai Comp. -1.27%), and in Europe 10 out 12 of markets are trading lower(DAX -0.81%). Today’s economic calendar includes the MBA Mortgage Applications, Durable Goods Orders, William Dudley speaks, EIA Petroleum Status Report, 5 Yr-Note auction
Our View: When I said that I have never seen the likes of the moves we are seeing over the last several days, one of the traders in our trading room pointed out some charts from 2011. Look, I remember how the credit crisis devoured the S&P. I remember the day the ES did 6.69 million contracts in one day. I remember all the big moves up and down and I still say we have never seen anything like we are seeing today. The difference was back then many of the big firms were shutting down and I do not believe there was as much algorithmic trading programs going on back then as this is today. Thus the movement today is being stretched out by all these mammoth programs that hit the futures. There is a lot less S&P index arbitrage going on and a lot more HFT and algorithmic trading and you can feel it and see it.
Our view is that it is ok to say you don’t know, and honestly I do not know. One side of me says the S&P will level off and start going up again and, the other says we have not made it to the end of August and into September yet. On Mondays open they wiped out $1.2 trillion in market cap, so for me, it’s hard to think this is over. After yesterday’s big rally, big dump, and rally back, I want to see how the ES opens and try and get a grip on the overall price action before jumping in.
And always remember to use stops when trading futures and options…
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In Asia 6 out of 11 markets closed closed higher: Shanghai Comp. -1.27%, Hang Seng -1.22%, Nikkei +3.20%
- In Europe 10 out of 12 markets are trading lower (6:00 am CT) : CAC -1.00%, DAX -0.81%, FTSE -1.02%, MICEX +0.05%, at 6:00 am CT
- Fair Value: S&P -3.10 , NASDAQ -2.09, Dow -29.83
- Total Volume: 3.56mil ESU and 21k SPU traded
- Economic calendar: MBA Mortgage Applications, Durable Goods Orders, William Dudley speaks, EIA Petroleum Status Report, 5 Yr-Note auction
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