When we talk about the ‘old days’ of trading, we are referring to the trading floor, before the world of algorithmic trading existed. Yes there was program trading (S&P index arbitrage) going on, it killed the XMI contract back in the 80’s, but today it’s a whole different story. High Frequency Trading (HFT) and Algorithmic Trading have not only taken all the slippage out but have also used the programs to help destruct the day trader. The programs are clearly written with the retail trader in mind; how we buy and sell, and how we place our stops. Its gotten harder for the little guy to make money, and it’s not going to get any easier, as these automated programs continue to develop.
Soros Is Back
Two days ago famed hedge fund owner and former trader George Soros said he was going to get back to trading. George is a very smart guy, and made a name for himself in the 80’s and early 90’s, but has been out of the physical trading world for many years. During those years the trading game has changed dramatically. We used to execute trades for his funds on the CME floor when the big game in town was hedge funds, but hedge funds have become out of flavor, and George getting back into the game should be interesting to see. In my opinion, he is a smart guy, but has zero skill in the new world trading order. Some of the best trading firms in the world are not making any money, and in most cases when the funds are not catching the stock moves, they are catching the currencies moves. Over the years the big funds made big money trading foreign exchange, but that also seems to be harder to trade, and less firms are profiting from it. A lot of things have changed, and seeing Soros trading his $30 billion fund will be interesting, to say the least.
After a four week rally in the Dow, S&P and Nasdaq, I had a feeling the indices could be up early in the week and down into the PitBull’s Thursday / Friday low the week before the June Quadruple Witching. Overnight, the Asian markets were weak, but the real weakness showed up in Europe surrounding a range of economic and political uncertainties. Bond yields in the UK, Japan and Germany all hit new all time lows. The Stoxx 600 was down 1.4% in morning trade, and the S&P 500 futures (ESU16:CME) traded as high as 2107.75 on Globex before trading back down to 2091.25 at 4:50 am. Helping the S&P lower was was a selloff in crude oil, gold, and copper. Concerns over the U.K.’s membership of the European Union on June 23rd weighed on stocks and supported government bonds. The German bund surpassed its all time lows of 0.025% yesterday.
Global Super ‘Nova’
Where is all this going? The banks are racking up billions in fees off our savings accounts. Zero, or negative, global interest rates are starting to push some big names into what I have been talking about for months, that some day we are going to wake up and the big decline / unwind will have begun. My own opinion is that the decline will start in the currency markets. Some credit lines will be cut and it will cascade throughout the global financial markets. It’s not just George Soros saying the end is near, Bill Gross (The Bond King) is calling the last 40 years of investing history a black swan. On Twitter yesterday Gross said the bond market, and its $10 trillion of negative-yielding bonds is, “a supernova that will explode one day.” Earlier this year Gross said capitalism is dying and will blow up, sun-like, before the actual sun blows up.
Personally, I do not know when things will blow up, but I do know it will happen. The global markets are being supported artificially by all the central bank bond buying. This can not go on forever. I do not see it ending anytime soon, but I still think we will all wake up some day, not just to the big sell off, but to the economic bandage the the US Federal Reserve started back in 2008 when it started its quantitative easing programs. If you thought the 87 Crash, or the 1999-2000 crash, or the Flash Crash were bad, this will be ten times worse. I think this is why the public has such a low interest in buying stocks.
In Asia, 9 out of 11 markets closed lower (Shanghai -0.30%), and In Europe 11 out of 11 markets are trading lower this morning (DAX-2.29%). Today’s economic calendar is light and includes Consumer Sentiment, Baker-Hughes Rig Count, and Treasury Budget.
Our View: I started saying to sell the rallies on Wednesday. I had a feeling the S&P could be up early in the week and down later, and that’s exactly what we are seeing this morning. Like always, it’s hard to sell the S&P when it’s down, so that leaves us with two trade ideas; buy the early weakness and sell the rallies, or just wait to sell the futures after they rally. I gave our trading forum 2091 vs the ESU yesterday, and 2091.25 is the low so far, but I don’t think that’s going to be the low. There are a lot of sell stops below the 2090 level and it’s my guess they run those stops.
The stats for the June Quad Witch are extremely bullish…You can take it from there.
Download all of the June Quad Witch stats here.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed lower: Shanghai Comp -0.30%, Hang Seng -1.20%, Nikkei -0.40%
- In Europe 12 out of 12 markets are trading lower: CAC -1.86%, DAX -2.15%, FTSE -1.63% at 6:30am ET
- Fair Value: S&P -10.13, NASDAQ -9.46, Dow -112.37
- Total Volume: 785k ESU and 16k SPU traded (mostly spreads)
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