With Brexit seemingly in the rear view mirror it’s on to the next thing in the S&P 500 futures. The (ESU16:CME) sold off from a globex high of 2119.50 a week ago last Thursday, made a low on Monday at 1891.50, and exactly one week later was trading right back up to 2104.75. This truly is part of the new world trading order. Big moves happen in hours and the big algorithmic and HFT players take advantage of the public being off base… and fully taking advantage of it!
There has never been a time that technology has advanced so far against the professional / retail traders. While we hate to refer to the ‘old days,’ it’s the only way to compare the past to the present. I remember on the trading floor, when I would be working the UBS program trading line, how the PitBull would scowl at me. He could hear me putting in bids to do S&P index arbitrage sell programs and have Moore Capital on the other line telling me to ‘sell 500’ and then ‘do it again, the hard way.’ He would be especially upset with me if he was long and I would say ’Bull, I can’t talk right now.’ After that he would generally use some foul language and slam the phone down. I remember that like it was yesterday. It has never left my mind how much I could move the S&P futures around with that UBS direct line and a host of big banks and hedge funds to always go in the same direction. If the bank or fund was selling through me, it was my responsibility to provide liquidity, and I did through the S&P index arb. When they were selling I was bidding for futures to do sell programs so everyone got to eat when that was going on. But the PitBull didn’t take this sitting down. He fought and fought and he warned ‘program trading will kill the game, just like in the XMI.’ One day he got so mad he said he wanted to take out a $1 million ad in the Wall Street Journal condemning program / electronic trading. After our S&P desk took a $5.3 million hit, that went out to over $8 million, I haven’t been able to get that conservation out of my mind. That nearly 20 years later the markets would be where they are today, man vs. machine, with the man being totally out gunned by so many different forms of programs / electric trading systems.
It’s a fact that when the markets get too stretched out in one direction the programs sense it out. Once the markers start to actually reverse it becomes a foregone conclusion that the S&P is going to squeeze out the maximum amount of shorts.
Yesterday the ESU16 sold off all the way down to 2072.50 late in the day. After several little late day sell programs, the futures double bottomed at the low and then started to short cover when the MrTopStep Imbalance Meter (MiM) went from $600 million to buy to over $1.4bil to buy helping, push the ES back up to 2083.50 after the 3:00 cash close. It’s a game the MOC buyers have been playing for the last few days. At the end of the day, the ESU16 closed down 13.5 handles at 2082.75, down -0.63%. Despite it being the day after the 4th of July the overall volume was decent. As for the overall tone of the futures they didn’t act great but the ES was overdue for a down day. All in all probably not that negative but more constructive.
During the Globex night session the futures continued to be offered along with the rest of global equities. The ESU16 pushed to an early low of 2067.50 in the Asian session, 15 handles lower, then rallied back up to positive territory at 2085.75 early in the European session before falling back to the early session lows this morning. The S&P bottomed overnight at the same time as the GBP/USD, but that pair has been grinding to new highs while the ESU is now trading at the lows. Today’s calendar is busy and features the FOMC minutes. After some recent statements by Fed members, it seems unlikely that there will be any rate hike this Summer, but it is still possible that the minutes from the June meeting will be a market mover today.
Join Danny Riley LIVE on Periscope at 8:15am CST for a very special announcement!
In Asia, 9 out of 11 markets closed lower (Nikkei -1.85%), and In Europe 10 out of 12 markets are trading lower this morning (DAX -2.24%). Today’s economic calendar includes Bank Reserve Settlement, MBA Mortgage Applications, William Dudley Speaks, International Trade, Gallup U.S. Job Creation Index, Redbook, Daniel Tarullo Speaks, PMI Services Index, ISM Non-Mfg Index, and FOMC Minutes.
Our View: Monday was closed and Turn Around Tuesday was not very kind to the ESU16. Did the S&P futures go too far too fast? Yes, the futures need a few days of selling off / back and filling before going back up again. The real deal is not all the shorts covered and I think there is more squeeze to come. That said, I also think it’s time to start thinking about what happened last year at the end of July into the whole month of August. I think higher but I can’t rule out some big ups and downs over the next two months. Be smart traders, it’s summer and anything that can happen, and will happen. Our view is to buy the early weakness and sell the rallies and start looking for the PitBull’s Thursday/Friday low the week before the July expiration. We all knew the ESU16 rallied too much too fast and Europe’s problems are far from over.
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 +0.36%, Hang Seng -1.23%, Nikkei -1.85%
- In Europe 10 out of 12 markets are trading lower: CAC -2.36%, DAX -2.25%, FTSE -1.03% at 6:30am ET
- Fair Value: S&P -7.43, NASDAQ -7.97, Dow -96.47
- Total Volume: 1.8m ESU and 7.5k SPU traded
[s_static_display]
No responses yet