While there has been a noticeable uptick in the size of the S&P 500 futures trading ranges and volume, the futures are ‘stuck’ in a very narrow trading range. Last week the two main drivers were the demise of Deutsche Bank and the British pound flash crash. Before I get into the ups and downs of last Friday and last weeks trade, I would like to spend some time talking about the pounds quick crash.
Computers Run The Tape
First off, the computer’s own the tape. I will use the term ‘in the old days’ only to point out that when the currencies moved in the past, it was mainly done by humans buying and selling. Hedge funds and banks taking on risk, adding to positions, or taking profits or losses. Today that type of buying and selling only makes up a small part of the volume. The humans that used to do the trading are either gone or are trading way less. They have been replaced by algorithmic, news headline trading programs that key off of certain words. Period. The end.
Currency trading used to be one of the largest sectors. Today it has been reduced to some very smart coders that know exactly how they can jump in front of the public’s buying and selling. This goes back to the three part of the trading day. What happens on Globex, what happens after the 8:30 ct futures open, and what happens after 1:30 when the big investment firms and mutual funds show up late in the day. There is no more 8:30 to 3:15, trading has gone global. It’s not only 24-7, it’s being controlled more and more by program trading, and less human intervention. Lets face it, there are a lot less of ‘us,’ and a lot more of ‘them’ (computers making trading decisions).
Last week the ES failed to take out the 2130.25 low set back on Monday July 11. In the prior week we talked about how narrow the trading range had gotten and how the ES is trading at the upper end of its trading range. At that time, we put out the range as being 2130ish to the double top at 2167.60, that was set on July 20. After a lot of back and filling, and a late day rally last Friday, the S&P traded back up to the 2157.50 area on Globex last night. Most of the push came after 4:00 am this morning.
Dazed and Confused
One of the things I think I do best is take a layman’s approach to the markets. I know I have said this before, and I am sure to say it again, but I barely got out of high school. My higher education came from the trading floors of the CBOT and the CME. I know that I do not have all the tools, but I also know that having too many tools doesn’t work either.
There has to be a mix of solid indicators and a bit of street smarts thrown in. That is what the PitBull likes about me. He knows I do not fully understand the economic side of markets, but he also knows that after all the years on the floor dealing with hundreds of customers and being part of every major stock market move since 1985 that I have developed some solid pattern recognition, and a good feel for the markets overall.
I know I am not always right, but who is? As I said, I do not like referring to the past as ‘the old days,’ but how else do you gauge the overall price action of the S&P today? You need to look to the past for some type of reference point.
The PitBull asked me several times last week what I thought of the markets. Most of the days he asked where and when the (ESZ16:CME) was selling off, and I was very clear in my answer; the public is confused. With the election hanging over the markets, clearly the public doesn’t know which way the markets are going. They are trying to take on less risk as the US presidential election nears. Sure the British Pound and Deutsche Bank are playing their own roles, but I think the election is overshadowing everything.
There have been a lot of negatives thrown at the S&P over the last few months. At 2160 the ES is only 33 handles off its contract high. If you asked me, I would say two things; 1) the S&P will remain in a trading range, and 2) there will be new all time contract highs in the ES before the end of the year, if not sooner.
While You Were Asleep
Overnight the Nikkei and Hang Seng were closed, but the Shanghai Comp reopened after being closed for a week. Asian markets traded mixed and Europe opened with a bid. The ESZ6 gapped 5.5 handles higher on the overnight open at 2152.00 and traded sideways, making a low of 2148.50 shortly after the Euro open, before rallying up to a 2156.50 high shortly after 6:00 am cst on volume of 125K.
Today is a bank holiday. While the markets are open, the currency and interest rate options pits will be closed. There is nothing worthwhile on the calendar except for Charles Evans from the fed speaking. While the ES has looked good overnight, we think once the opening action settles down the S&P will be very quiet with thin-to-win type price action.
In Asia, 5 out of 9 open markets closed lower (Shanghai +1.45%), and in Europe 10 out of 11 markets are trading lower this morning (DAX +0.59%). This weeks calendar includes today’s bank holiday, Columbus Day, 12 economic reports, 6 Fed Speakers and 12 U.S. Treasury note/bond/bill auctions or events. Today’s economic calendar includes US Holiday: Columbus Day Banks Closed, Markets Open, TD Ameritrade IMX, Charles Evans Speaks
29 Days and Counting
Our View: There is an extremely low level of economic reports this week, 12 in all. Today starts out the week with the banks and bond market closed for the Columbus day holiday. On Wednesday we have the fed minutes, but overall, it looks like it will be a slow week. The ES is stuck in a narrow trading range and that’s not going to change anytime soon. There are 29 days until the election. I am not going to take a side, it looks like Hillary Clinton is moving firmly ahead of Donald Trump. If that’s the case, the markets will react in kind, they will rally. More of the status quo. Our view is that today should be a quiet day, sell the early rallies and buy the late weakness.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 5 out of 9 open markets closed lower: Shanghai Comp +1.45, Hang Seng closed, Nikkei closed
- In Europe 10 out of 11 markets are trading higher: CAC +0.48%, DAX +0.59%, FTSE +0.20% at 6:00am ET
- Fair Value: S&P -6.36, NASDAQ -6.88, Dow -89.51
- Total Volume: 1.95mil ESZ and 2.0k SPZ traded
No responses yet