When President Trump warned North Korea about continuing to threaten the U.S. by saying the North will be meet with ‘Fire and Fury’ of the likes the world has never seen, the U.S. stock market sold off, and so did many of the other world markets.
Yesterday, on globex, the S&P 500 futures traded down to 2459.00. On the 8:30 CT bell, the ES (ESU17:CME) opened at 2462.50, and traded up to 246650 before going back down and testing the Globex low at 2459.25. From there, the futures traded above and below the vwap, and made a new high at 2468.00. After that, it was a series of higher lows that eventually pushed the futures back up to 2468.75, and then up to its high of the day at 2470.50.
Early in the day I said 2470-2471 would be the potential resistance. The S&P no longer does its own thinking, movement is keyed off the price action of the Nasdaq 100 futures (NQU17:CME). When the NQ rallies the ES goes with. When the NQ downticks the ES goes with. After making the 2470.50 high, the NQ sold off, and the ES sold off down to 2462.25.
While there were some good ups and downs, the big thing was the volume. At 2:00 CT total ES volume was 1.25 million contracts. Late in the day, the MiM started out showing $131 million for sale, and flipped to $26 million to buy. The ES made a late low at 2462.50 after an NQ stop run under the vwap, and traded up to 2468.00, then 2571.50 when the NYSE came out showing buy $650 million.
Like the title says, ‘10 years after the credit crisis the stock market is still going’. Bad news like Trumps North Korean threat, or for that matter any negative headlines, always turn into buying opportunities. When I saw that 330,000 ES traded on Globex yesterday, all I could think about was how the sell off got people short at bad prices, and that after running the sell stop the ES would push people out on the upside, and that’s exactly what happened.
In the end the S&P 500 futures (ESU17:CME) settled at 2473.00, up 0.25 handles, the Dow Jones futures (YMU17:CBT) settled at 22018, down -12 points, and the Nasdaq 100 futures (NQU17:CME) settled at 5922.50, up +4.50 points.
Investors Have Never Been More Short Volatility Futures
Bloomberg:
Never mind strategists warning of a potential VIX rebound, or historical data showing the index tends to jump the most in August. The number of short positions on VIX futures has hit a fresh peak, and an exchange-traded fund that benefits when volatility falls just saw its biggest weekly inflows since June, following three weeks of withdrawals. That’s even as the CBOE Volatility Index hovers within 1 point of its record-low close.
So what may be pushing investors to keep shorting volatility and why is the market so stubbornly calm? Dean Curnutt, CEO of Macro Risk Advisors, said in a note last week it may be due in part to the hedging of long vol positions established before things got this quiet. Here’s what he wrote:
Realized vol is just so low and has already imposed such theta loss that those who own it higher are more trying to get out of the way for now and manage the rent with short-dated variance sales at levels we really aren’t used to seeing.
In conclusion:
Are the collective (re)-hedging pursuits of long-vol holders serving to dampen volatility? The story is an appealing one as market participants seek to explain not just a low-vol period, but an environment that is so quiet that it feels as if some other factor is at work.
CFTC VIX: CFTC Commitments of Traders Report – CBOE (Futures Only)
While You Were Sleeping
Overnight, equity markets once again traded lower across the board, as North Korea has laid out detailed plans for missile strikes on Guam. In the U.S., the S&P 500 futures traded in a 13.25 handle range overnight. As of 6:40am CT, the last print in the ESU is 2463.25, down -9.75 handles, with 191k contracts traded.
In Asia, 8 out of 11 markets closed lower (Shanghai -0.42%), and in Europe 12 out of 12 markets are trading lower this morning (FTSE -1.26%).
Today’s economic calendar includes Jobless Claims (8:30 AM ET), Producer Prices Index (8:30 AM ET), New York Fed’s William Dudley Speaks (10:00 AM ET), EIA Natural Gas Report (10:30 AM ET), 30-Year Bond Auction (1:00 PM ET), Treasury Budget (2:00 PM ET), Fed Balance Sheet (4:30 PM ET), and Money Supply (4:30 PM ET).
Earnings: EchoStar, Kohl’s, Macy’s, News Corp., Nordstrom, Snap.
Our View
If you bought every knock down after a big headline you would win 99% of the time. Trading is about ‘patterns’ and that’s how this game works. Yesterday I said sell the rallies, but by the time the U.S. open came around, over 330,000 ESU’s had already traded. Meaning everyone had already sold.
Our view is that it’s back to business as usual; buy the weakness when the ES falls under the vwap. If the ES gaps higher, you can sell the gap up, but buying under the vwap seems to be how this works.
PitBull: CLU osc -1/15 turns up on a close above 49.75; ESU osc 4/12 turns down on a close below 2477.78; VIX osc 8/0 turns down on a close below 9.68.
MarketVitals for Thursday 08-10-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower: Shanghai Comp -0.42%, Hang Seng -1.13%, Nikkei -0.05%
- In Europe 12 out of 12 markets are trading lower: CAC -0.40%, DAX -0.73%, FTSE -1.26%
- Fair Value: S&P -1.78, NASDAQ +0.95, Dow -30.16
- Total Volume: 1.5mil ESU, and 1.3k SPU traded in the pit
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