After selling off hard, and rallying back even harder, the S&P futures came to a standstill during Fridays July options expiration. With the exception of a little movement in the first 45 minutes, the S&P futures founds itself running in place, stuck in 3 handle trading range for most of the day. Traders can talk all they like about the all the ups and downs, but they should be concentrating on one thing, and one thing only; volume, or the lack thereof.
As a trader I always like to get up in the morning and do my pre-open round up. Get a feel for what happened overnight, and get prepared for the 8:30 open. After weeks of thrashing around, the S&P came to a complete stand still on expiration Friday, and you want to know why? Because option traders rolled lower when the S&P was going down, and after the ESU kept going up, the options players were forced to roll higher. This is not just the little retail guy I am talking about, it applies to prop trading firms, big investment and mutual funds, that just over 6 days ago, were selling the S&P. When a big hedge fund is long stocks, they don’t sell the stocks when the markets get weak, they “hedge positions” by selling S&P futures or using options. They adjust (protect) to the downside which is much easier to put on than take off.
This goes back to what I was talking about in last weeks Opening Print where I described how the cash buyers work in unison with the stop hunting algorithmic programs, and how they run the buy stops that lift (buy) the offer of the ESU15 that make up and index arbitrage buy program. This is one pattern that you want to avoid shorting, if you’re lucky enough to recognize it.
WHATS CHANGED?
I think thats a good question… What has changed in the S&P? Can you tell me please? In my view ,absolutely nothing has changed. The public does the same thing over and over. Instead of looking at the sell off as a possible buying opportunity, they are too busy thinking ‘crash’, rather than looking at the actual price action. One by one, the commentators on CNBC paint this very bleak picture. I can’t remember one person that came on saying… these crises will pass, this is a BUYING OPPORTUNITY! Why? Because they are cowards, and can not break away from what everyone else thinks? No, because they are too stuck in a world of waiting for a crash, rather than trading the markets and following the patterns that have helped push the S&P higher for the last 6 years. Traders, you have to think outside the box, you have to think like an algo.
I am not here to talk macroeconomics. I am not an analyst, nor did I ever go to a school of higher learning. I understand that my sentences sometimes run on. I know my spelling and punctuation is not perfect, but I really do not think most traders that read the Opening Print really care. Do I like it when it happens, no and I get mad at my editors, but at the end of the day, I do not write like most people do. I do my best to tell it like it is. Are all my trades winners? No, but all I care about is how it adds up at the end of the month. I have said it many times; I am not your chartist. I am not here to compete. I am here to share my 37 years of floor trading experience in the hopes that some of you will avoid the pitfalls that so many traders that went through our floor desk operations have made.
In the end, it’s 7:30 AM CT, Monday morning. The ESU15 that closed at 2118.80 traded up to 2122.50 in Globex last night. The ES is right at the level we put out early last week, 2118 to 2122. I really am starting to think we could be nearing a high of this move, but as I look at the screens, I see there are only 49,000 ES trading at 6:45 CT. This backs up my idea that more traders are taking time off, which brings me back to one of the most basic, but one of the most important trading rules of all, never sell a quiet market.
In Asia, 6 out of 11 markets closed lower, and in Europe 11 out of 12 markets are trading higher this morning. This weeks economic calendar includes only 12 economic reports, 11 T-bill or T-bond auctions or announcements, and no fed speak. Today there are no economic reports, but there are a lot of companies reporting earning before and after the bell; MS, HAL, IBM, CALM, HAS, LII, STLD, SAH, ZION, GPC, EFII, RMBS, HXL, CCK, BRO, EXAS, and WWD.
SUMMER TIME BLUES
Our View: After being on the floor for so long, we knew the sessions where people were trading, and when they would cut back. From just after the 4th of July, to the first week of September, is prime vacation time for families in the U.S. and Europe, who tend to take even longer holidays. Traders take time off too, and that my friends, is exactly what is going on. Now that there are deals in place for Greece and Iran the world had a relief rally. The ESU15 has closed higher 6 days in a row!
As always, please use protective buy and sell stops when trading futures and options.
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In Asia 6 of 11 markets closed lower: Shanghai Comp. 34.76(+0.88%), Hang Seng Down 10.46 (-0.04%), Nikkei Up 50.80(+0.25%)
- In Europe 11 out of 12 markets are trading higher: DAX Up 113.22(+0.97%), FTSE Up 19.84(+0.29%), CAC Up 39.76(+0.78%), MICEX Down 14.59 (-0.88%), GD.AT CLOSED Up 15.84(2.03%) at 6:30 am CT
- Fair Value: S&P -7.01, NASDAQ -8.94 , Dow -82.88
- Total Volume: LOW 890k mil ESU and 4k SPU traded
- Economic calendar:There are no scheduled economic reports today. >
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