A few years ago I was talking about a string of back to back “up and down” days in the S&P. No one was talking about it but but me, and I did a few videos talking about it, and then Maria Bartiromo from CNBC comes on talking about it. I doubt very highly that Maria goes in the CME website everyday and just starts talking about the net changes of the ES over 8 or 10 days. I like her, she’s attractive, and smart, but she didn’t pull that out of thin air. And while Nanax has it own pulse, MrTopStep has been talking about the volumes of the S&P futures for, not months, but years.
WAKE UP AND SMELL THE COFFEE
No one wants to talk about it, not the CME, platform providers, data feed providers, second and third party provides, full and non-clearing members, IBs, Banks, hedge funds, investment firms, and the public as a whole has said goodbye to the futures and options trading industry. What Maria B and Nanx have no clue about, is this isn’t something new, and I call it “cause and effect”. Sure, all the fancy charts and graphs are cool. I look at them mostly with dismay, but wake up my friends, it’s a brave new world out there where not only nothing stays the same, but things that used to work, don’t anymore. And you know what? They are never, and I mean never, going to go back to the old days. They are done and gone. The game is not the same, and people have caught on. Sure the S&P does more volume on the downside than the upside, but over the last 6 months, even that has changed.
MF Global & PFG
There was already trouble brewing for the CME and the CBOT long before the CME bought the “Board”. ICE was in town pushing up the cost of the buy-out, but there were other things brewing. Jon Corzine from Goldman had taken over MF Global, and he didn’t give a rats ass about the customers, all he cared about was trading, so he took on a bunch of “prop traders” that…say it like it is…took down the largest futures firm in the business. To run his “house” trading accounts, he used house money; customer segregated funds to sponsor the party. When that went south thousands of customer and hundreds of floor traders, including chairman of the Board of Trade Charlie Carey, were locked out of their trading accounts and the trading floor. Next was PFG and Russ Wasendorf Sr. and his hidy-tidy crew of totally brain washed employees. Russ had everyone wearing suits in the office to make everything look much more “official”, and the employees ate up his BS hook, line, and sinker. There were some nice people there, don’t get me wrong, but others really helped play the part, they just didn’t know they were part of a $200million ponzi scheme. Did you know that when the NFA fined PFG $1million for foreign exchange violations, that they paid the fine with money that came from the customers accounts? Did you know a call by a local Chicago resident called them out on it, and they paid the money back? It’s almost too hard to believe, but in the end Russ got sent away for a long time, and Jon Corzine wants to open a hedge fund.
I am not here to talk about last weeks +0.30% rally. I am here to talk about one of tradings most famous rules; Never Sell a Quiet Market. The chart above is great but it’s not showing what’s going on now!!! Just off the top of my head, I know that the CME had all time record ES volume of 6.9 million contracts back on October 2009. There was a 3 week period where the ES did 4.5mil contracts a day, up to 6.9million in one day. We also know that volume started to “taper” in 2110 and 2011, picked back up in 2012, but has gone pretty much straight down since then. I don’t have the data to pull the chart, but I do know the exact volume of the ES on a daily basis. I have been tracking it for over 25 years and I can clearly tell you that we are looking at historically low volume for the ES S&P 500 futures, and it’s getting worse on a daily, and a weekly, and monthly basis, and it’s lower than what the Nanex chart shows. Why is it lower? Because the chart is including Globex volumes, for one, and the second part, is who cares about a chart going back to 2005? Personally, I don’t think people that trade the S&P want to see a chart showing average daily volume of 1.5mil contracts a day when it dropped down to under 800,000 last week, and has not broke 1 million in several days.
Lets be realistic traders. Someone left the door to the chicken house open and they didn’t just steal the eggs, they got the chicken too. The problem here is by the time they get around to closing the door there will be no on one left to buy the eggs. And to Eric Hunsader, why don’t you make 3 new charts; 1) the drop in volume after MF Global, 2) the drop in volume after PFG, and 3) a chart of the ES volume over the last 3 years and then give us the average. I can tell you for sure the average volume in the CME’s e-mimi S&P is not 1.5mil a day anymore. The Wall Street Journal says bond trading, treasury trading, interest-rates futures, and credit-derivatives volume are all down, and it’s possible that investment-banking revenue could drop by more than (15%) q/q in Q2. I could have told you that!
In Asia 7 out of 11 markets closed higher, and in Europe 8 out of 12 markets quoted are trading lower this morning. This weeks shortened holiday week includes 18 separate economic releases, 10 T-bill or T-bond auctions or announcements, 6 Federal Reserve Bank presidents speaking, and the US GDP. Monday the markets are closed but Loretta Mester and Stanley Fischer from the Fed speak, and Tuesday’s trade starts with Durable Goods Orders, FHFA House Price Index, S&P Case-Schiller HPI, PMI Services Flash, Consumer Confidence, Richmond Fed Manufacturing Index, Dallas Fed Mfg Survey, 2 Yr-note auction, and Stanley Fisher and Jeffrey Lacker from the fed speak.
Our View: The VIX dropped down to 11.82 on Friday. The lower it goes the greater the risk, that’s just how it works. Fridays and Mondays are the lowest volume days of the week, and with everyone off Monday for Memorial Day, today’s trade could start the week out on a slow note. The ESM15 sold 2115.25 in Globex, and at 6:30 CT is down 4 handles 2120.50. Over the course of the last two weeks the ES has taken out the majority of the buy stops, and the down side sell stops are building up, but it doesn’t seem like they can get a big enough of a push to start knocking them out. I am sticking with my idea that from 2130, the next 30 handles are down. I admit the low volumes have been working in favor of the upside, but the ES generally goes where the stops are. Our view is to buy weakness and sell rallies with tight stops.
- In Asia 7 of 11 markets closed higher : Shanghai Comp. +2.02%, Hang Seng +0.92%, Nikkei +0.12%
- In Europe 8 out of 12 markets are lower : DAX -0.50%, FTSE -0.21%, MICEX +0.16% , GD.AT +1.49% at 7:00 CT
- Fair Value: S&P -2.28 , Nasdaq -1.55, DOW -25.61
- Total Volume: LOW 765k ESM and 1.2k SPM traded
- Economic calendar :Durable Goods Orders, FHFA House Price Index, S&P Case-Schiller HPI, PMI Services Flash, Consumer Confidence, Richmond Fed Manufacturing Index, Dallas Fed Mfg Survey, 2 Yr-note auction and Stanley Fisher and Jeffrey Lacker from the fed speak.
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