It seems like there will always be a reason to sell the S&P. Last week it was the French elections. This week its North Korea’s announcement regarding its 7th nuclear test, and then President Trumps firing of James Comey, the head of the FBI. None of the three events led to very much selling, and what selling did occur was short lived before buyers came back in.
Wednesdays S&P 500 futures (ESM17:CME) trading session was extremely slow. In the first 45 minutes the total trading range was only 3.5 handles. It may sound funny when traders say that the algos can’t eat when volumes are so low, but it’s 100% true. Some would say the low volume is tied to the VIX, but that is not true. The ES volume has been steadily going down for the last several years, and has never recaptured its 2 and 3 million contract days like it used to have pre-2007 credit crisis.
While the number of traders has decreased, the level of high frequency trading has increased. Some believe that high frequency / algorithmic trading makes up 70% to 75% of the volume. If the (ESM17:CME) does 900,000 contracts and you take out the 150,000 from Globex, that leaves 750,000 contracts. Then you subtract 70% for program trading and total day trade volume is only 225,000 contracts.
MrTopSteps trading rule ‘Thin to Win’ has been getting a new meaning, and yesterday was a good example. After selling off a few times under the vwap at the 2390-2391 area, and then trading in a 5 handle range for most of the day, the futures made new daily highs at 2396.75 on the 3:15 futures close. The MiM started showing over $500 million to buy. The reason we talked so much about the volume is because there was none. At times the ES did not tick / change prices for several seconds. And the size of the bid / offer on the ladder was only 100-200 up.
While You Were Sleeping
Overnight equity markets in Asia closed mostly higher. In Europe, stock markets are barely unchanged, just slightly higher. In the U.S. the S&P 500 futures opened the globex session at 2395.00 and made a session high of 2395.25 early in the Tokyo session before drifting down to 2390.75. As of 7:15 am cst, the last print is 2388.50 down 6.75 handles, with 105k contracts traded.
In Asia, 8 out of 11 markets closed higher (Shanghai +0.29%), and in Europe 8 out of 12 markets are trading higher this morning (FTSE +0.04%). Today’s economic calendar includes the Weekly Bill Settlement, William Dudley Speaks, Jobless Claims, PPI-FD, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 10-Yr TIPS Announcement, 30-Yr Bond Auction, Fed Balance Sheet and Money Supply.
Additionally, Goldman put this out yesterday: Are Warning Lights Flashing?
The last time 100 day $SPX realized vol was this low was 1964-66. I think we all know the historical importance of the VIX, even though some think the VIX is a ‘worthless indicator’. It may not happen today, or tomorrow, in a week, or in a month, but a historically low VIX going into late July (PitBull says watch the last week of July) could spell big trouble for the markets. Sure, things can and more than likely will, continue as is, but we all know that when the VIX spikes… You better be fast!
Our View: PitBull’s Thur/Fri Week Before Expiration
I said two days ago that I was watching 2388, and the Globex double bottom from yesterday was 2387.50. This morning, as I write this, the futures are pushing back down to 2388. Next week is the May options expiration, so our rules tell us to start looking for a low to come either today or tomorrow. There is a lot of open interest on the 2400 calls next week, and so we see any selling as an opportunity to buy and hold into next week.
The S&P is stuck in a low volume grind. Little sell off followed by back and fill price action. We are all seeing the same thing. The ES is trading just below the big figure at 2400.00, but we don’t think that’s going to last for very long. It’s thin and there are a ton of buy stops that basically go straight to 2412.00. Will it happen today? Maybe. Will it happen next week? I think so, but either way, the index markets feel like they are setting up for a ‘pop’.
That said, today we are on guard for the PitBulls Thursday / Friday low the week before the expiration. Will it happen? It could, but it’s so thin right now, and that always works in favor of the upside. Our view is for higher prices, buy weakness with tight sell stops.
PitBull: CLM osc -15/-26 turns down on a close below 4510, ESM osc 8/14 turns up on a close above 240200, VIX osc -6/-15 turns up on a close above 979.
Market Vitals for Thursday 05-11-2017
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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 higher: Shanghai Comp +0.29%, Hang Seng +0.44%, Nikkei +0.31%
- In Europe 8 out of 12 markets are trading higher: CAC +0.02%, DAX +0.03%, FTSE +0.04%
- Fair Value: S&P -2.48, NASDAQ -1.26, Dow -38.29
- Total Volume: 998k ESM and 5.0 k SPM traded
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