After a big day of thrashing up and down on Wednesday, the S&P 500 futures (ESM17:CME) saw a quiet day of trade Thursday. As April comes to a close and we look toward May, even the bears are calling for higher prices. While we agree, we also know that when sentiment shifts so quickly, it puts risk back in, and as the day wore on, so did the S&P. Crude oil futures were also weak, selling off all the way down to $48.20 midday.
There are all sort of ways to interpret the markets price action. Some traders see the early sell off as bearish, and others see it as a buying opportunity. Some think the (ESM17:CME) is going to pop to new all times highs, while others think the S&P is going to fill the gap from 2345 on last Friday’s close. It’s all in the eyes of the beholder. What we do know is that algorithmic and high frequency trading dominates the futures trading arena, and in order to make money, you have to be willing to change your view in a millisecond. If you can detect the trend days vs. the range days it would make things a lot easier, but that’s not how it works.
The word ‘easy’ doesn’t apply when you are an individual retail trader. No one cares if you win or lose, and the brokers top the list of those who really don’t care. If you lose money and disappear, there is always a new ‘you’ just around the corner.
They say trading futures is a zero sum game, but that’s not true. The bot’s make money every day, while only a small percentage of retail traders make money. The Pit Bull used to yell at me all the times saying the markets are ‘rigged’! Back then it was all the index arbitrage and program trading. Remember it? They blamed the 1987 crash on it. Back then the PitBull used to fly off the handle at me when he heard me quoting the UBS direct line when the levels between the S&P cash and S&P futures lined up. He would ask for a ‘bid or an offer’, and he would yell back at me and say ‘this crap will kill the markets some day, look what it did to the XMI.’ The PitBull was right, as usual, but that warning was something I will never forget.
Where Have All The Traders Gone?
While some traders may not put as much credence into the effects of algorithmic and high frequency trading, it’s very hard to deny the numbers. Yesterday’s total volume in the S&P 500 futures was 1.1 million, but when you subtract the 145,000 traded on Globex, that number drops down to 950k, and then you subtract 70% for electronic or program trading, and you only have 300k e-mini’s traded on the day session. Is the PitBull right? Has HFT and algorithmic trading chased all the small traders out of the business? Thats for you to decide. What I know this; the ES used to do millions of contacts a day. While I know the credit crisis and all the new regulation killed some of the big players, it’s hard to believe that in March of 2009 the emini S&P did record volume of 6.69 million contracts a day, and today it barely does over 1 million contracts a day. Where have all the traders gone?
Yesterday the S&P 500 futures opened the 8:30 am cst regular cash session at 2386.50, up 3.75 handles, and stayed in a 5 handle range for more than an hour. Just before 11:00 am cst, sell programs pushed the futures down to 2378.75. The S&P started to bounce, and it looked like bears may defend lower prices, but heavy buys pushed the futures right back up going to a new high at 2388.75, completing a perfect 10 handle range. After dipping back down below the opening range to 2383.00, bulls were unable to push to new highs as the index traded extremely quiet. There was a brief moment of selling in the morning, and a couple brief moments of buying going into midday. The day settled at 2386.25, just a tick below the open.
While You Were Sleeping
Overnight, equity markets in both Asia and Europe are mixed, and there is bi clear trend to end the week overseas. In the U.S., the S&P 500 futures opened globex at 2386.25 and traded sideways for much of the Asian session. The low was made at 2383.50 early after the Euro open, and since then, the futures have rallied back above yesterday’s close to a high of 2388.50, up 2.50 handles. As of 5:24 am, the S&P sits two ticks off that high, with just about 67k contracts traded.
In Asia, 6 out of 11 markets closed higher (Nikkei -0.29%), and in Europe 7 out of 12 markets are trading lower this morning (FTSE -0.28%). Today’s economic calendar includes the 5-Yr TIPS Settlement, GDP, Employment Cost Index, Chicago PMI, Consumer Sentiment, the Baker-Hughes Rig Count, Lael Brainard Speaks, and Patrick Harker Speaks.
Our View
The ESM was trading 2385.00 7pm last night, and nothing really changed since then. The ES is trading in a tight range. I said it yesterday, and I will say it again, if you think it’s quiet now, just wait until June and July. I think it’s possible that the ES has some record low volume days. If total volume is 1.1 or 1.2 mil a day now, what do you think it will be the week before or after the 4th of July? I say total volume will be under 800,000 a day, including Globex.
Our view is that the shorts have not been totally squeezed out yet, and a push above 2394 – 2396 could set off a big stop run. On the other side of the coin, my Macro Market Profile chart is showing that 2368.00 as a possible pull back area.
The US is saying they want to talk to North Korea, so the war drums may get quiet. If the ES is down on the open, then I lean towards buying the early weakness and then look for a bounce to sell the midday rally. You can take it from there.
PitBull: CLM osc -26/- turns down on a close below 4760. ESM osc 38/3 turns down on a close below 240648, VIX osc -40/1 turns down on a close below 826,
Market Vitals for 04-28-2017
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As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed higher: Shanghai Comp +0.08%, Hang Seng -0.34%, Nikkei -0.29%
- In Europe 7 out of 12 markets are trading lower: CAC +0.24%, DAX +0.12%, FTSE -0.28%
- Fair Value: S&P -3.72, NASDAQ -2.27, Dow -65.54
- Total Volume: 1.1 mil ESM and 3.2 k SPM traded
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