S&P 500 Futures China Push Back; PPT Behind the Curtain

_{3 Day Volume Imbalance Chart}

The S&P futures pushed back against the Chinese YUAN devaluation yesterday. After opening at 2064 they sold off down to 2046.50. After the sell off down to the lows, the S&P’s (ESU15:CME) started a short covering rally, taking the sellers for a ride all the way up to 2084.50. The 38 handle short squeeze in the S&P futures was a push back from the weakness in China and all the selling over the last two days..

Where did all the PANIC go?

Traders live for ‘panic’ but the first 3 days of the week were an extreme example. The ESU15 rallied sharply on Monday, fell hard on Tuesday, and accelerated to the downside after the Chinese government devalued its currency for the second day in a row. China’s central bank devalued the yuan by 1.85% on Tuesday, 1.6% on Wednesday, and 1.1% on Thursday, and denied that the government planned to devalue its currency by 10%. The move by China was seen by the US as a way to make goods cheaper in China and push up the dollar to make it less competitive. The US and investors feared the worst as stocks sank around the world dragging down shares of big exporters furthering fears of a larger global slowdown. There is no doubt that traders thought the markets were going to crash, and thats when I put this out to the traders of the MrTopStep Trading room:

09:43:25 ET TRADINGDATA2: (driley) Remember- the S&P ‘never’ does what everyone wants it to do when they want it

Everyone was short and pressing the S&P lower, and when the ES started taking out the sell stops under 2051, it started to look really bad. Fear of a crash was ripe and the futures were acting accordingly. While many traders were focusing on all the negative China headlines, I was trying to figure out when the computation was going to occur. Most of the margin calls went out late on Tuesday, and according to the new CFTC rules, the margin calls must be satisfied by Wednesday’s open. In addition to the global weakness in the S&P futures, there was also a large amount of margin selling going on after yesterday open. Once the margin calls were satisfied by either putting up more money, rolling lower, hedging the position with S&P futures, or forced liquidation, the S&P futures started to short cover. As the futures rallied traders started to realize that the S&P was very oversold and holding ‘S&P 2050’.

The only thing I can say is that I hope that traders start recognizing the ongoing patterns in the S&P. That its ok to be bearish but that you also must be willing to shuffle your feet. Sure China is the second largest economy in the world, but when the US markets were not down as much as its Asian and European partners yesterday, we figured something was going to have to give. In the end it was the S&P that led the global markets back to where they are this morning; sharply higher.

In Asia, 11 out of 11 markets closed higher (Shanghai Comp. +1.76% ), and in Europe 11 out of 12 markets are trading higher (DAX +1.75% ). Today’s economic schedule starts with Jobless Claims, Retail Sales, Import and Export Prices, EIA Natural Gas Report, 5 Yr-TIPS, a 30 Yr-Bond Auction, and earnings from AAP, KSS, KING, AMAT, JWN, LOCO, COTY, YY, TRCO, DAR, GK, STRI, VJET, PRTY, and PAAS.

S&P 500 CHINA FALSE START

Our View: Unreal… The spoos could not have looked worse, and in comes a 38 hande reversal. Big time ‘water in the bathtub trade’ As I have said many times; I have been part of every major stock market event since 1985 and I do not care what anyone says; we have never seen the S&P doing what it’s doing today. It is so mechanical, so algo’d up, so programmed up, you most definitely must ‘think like an algo.’ You have to dive in when they look their worst and sell the S&P when it looks its best. Our call Tuesday was to buy the early weakness and sell the rallies (right on), yesterday it was sell the early rally and buy weakness (right on) and today we think there will be an early pull back and rally. You can take it from there.

“S&P Futures China / Push Back / PPT Behind the Curtain”

As always, please use protective buy and sell stops when trading futures and options.

In Asia 10 out of 11 markets closed higher : Shanghai Comp. +1.76%, Hang Seng +0.43%, Nikkei +0.99%
• In Europe out 10 of 12 markets are trading higher : CAC +1.64%, DAX +1.58%, FTSE +0.60%, MICEX +0.46%, at 5:30 am CT
• Fair Value: S&P -4.29, NASDAQ -4.72 , Dow 48.64.
• Total Volume: 2.35mil ESU and 10k SPU traded
• Economic calendar: Jobless Claims, Retail Sales, Import and Export Prices, EIA Natural Gas Report, 5 Yr-TIPS and a 30 Yr_Bond Auction.

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