Dear Mr. Soros
First, I would like to thank you for the business your funds did through our S&P 500 futures desk on the trading floor back in the late 1980s and 1990s. No one can discount your accomplishments as one of the most successful hedge fund managers ever. According to Forbes your net worth is over $25 billion, no one in your business made that much. Great job, but your latest trades are a great example of how much the markets have changed. One of my sayings is that ‘these are not our fathers markets or charts,’ and I think you will agree with that.
So much has changed, from the Japanese Yen to the S&P 500 futures and options, every stock, every futures, and every options contract is inundated with high frequency and algorithmic trading. I do not know if you knew this, but 2016 was the year of the dog. Almost every market worthy event was an initial spike down, and then a big rip higher. We are not just talking 2016, what about Monday August 24, 2015, or more recently the Brexit vote, and the win by President elect, Donald Trump? In the two latest examples it was all about bucking the status quo but those were not the trades you made.
I didn’t get to go to college, I started on the Chicago Board of Trade floor when I was 19, I do not pretend to be even close your intelligence level, nor will I ever achieve the success you have, but over my 38 years on the trading floor I was part of every major market event. While I am not fond of the term ‘back in the old days,’ guys like you, Paul Jones, Louis Bacon, and several others, were known for making big bets and punishing the markets in your favored direction…that doesn’t work anyone.
Once the algos have your number, there is no out, or rolling the positions higher. The higher the S&P goes the more the programs push you out. In this case you become no different than the small retail customer getting a margin call from his clearing firm. The difference between you and the small guy is he would get forced out long before the Dow rallies 10%. It’s not like it used to be where you can just pile things on and hope for the best. In the new world trading order the markets will take as much cash as you’re willing to put up.
When it was first put in the news that you were going to ‘return from trading,’ all I could think of is how much the markets have changed, not just in the last 25 years, but how they have changed over the last 7 or 8 years, and especially over the last two. The markets have become very unforgiving, and I credit that to the rise of algorithmic trading. Look at all the great traders and hedge funds that can’t make money anymore? I told my Twitter following that stepping back into trading would prove hard for you, and I was right. I know it’s not over till it’s over, but like I said, these are not our father markets, nor will they ever be again. You drop $1 billion and your old employee Stanley Druckenmiller makes $1 billion. They say politics and trading do not mix… is that true?
Good trading to you George, just don’t forget what I told you… ‘These are not our fathers markets !!!!’
Danny Riley AKA MrTopStep
Fridays Trade and the MLK Abbreviated Holiday Trading Session
Friday closed out a week slow with a 7.25 handle range as many traders headed for an early exit ahead of a three day holiday weekend. The week was not without some flavor as the S&P futures traded as high as 2275.25 during Monday’s globex session and made a series of lower highs and lower lows throughout the week before eventually trading down to 2248.50 on Thursday before doing what the S&P’s do so well, rebounding from the dip and that strength from Thursday’s Pitbull low carried over into Friday as the S&P’s settled at 2270.75, unchanged on the week as the bears were once again frustrated by the dip buyers.
Going into this week, the calendar is mostly light, but Fed Chair Yellen does speak on multiple occasions, and the “hard Brexit” concerns out of Great Britain along with Trump’s Inauguration will keep things interesting. This week is also the January options expiration week, which historically does not tend to be one of the stronger performing opex weeks having closed lower in 14 of the last 18 years including three years in a row. However, it is worth noting that the last three years there was weakness in the S&P in January and so far this month, now more than halfway through, the index futures are maintaining higher prices.
While You Were Sleeping
Overnight, equity markets in Asia were mixed and Europe opened and was mostly offered this morning as the major markets are lower. The ESH17 opened Sunday nights globex session at 2270.25, made a high at 2270.50 on that open, and since then has seen a steady offer. The futures traded down to 2265 during yesterday’s European session, before bouncing back to 2268.75, but then last night traded sideways until late in the Asian session and began to break down and eventually traded down to 2259.00 this morning after the European open. I see the last print in the futures as 2264.50, down 8.00 handles on volume of 280k at 7:40 am cst, noting that the globex volume includes all action since Sunday night’s open.
In Asia, 6 out of 11 markets closed lower (Nikkei -1.48%), and in Europe 10 out of 11 markets are trading lower this morning (DAX -0.97%). This week’s economic calendar features 18 reports, 9 Fed speakers, and 15 U.S. Treasury events. Today’s economic calendar includes a 3-Yr Note Settlement, a 10-Yr Note Settlement, a 30-Yr Bond Settlement, Empire State Mfg Survey, William Dudley Speaks, Lael Brainard Speaks, a 4-Week Bill Announcement, a 3-Month Bill Auction, a 6-Month Bill Auction, and John C. Williams Speaks.
New York Fed President Dudley (FOMC voter) speaks: New York Federal Reserve President Dudley will speak on consumer behavior. Although not directly related to monetary policy, his views on the evolution of the savings rate should provide insight into his views on the strength of the household sector.
San Francisco Fed President Williams (FOMC non-voter) speaks: San Francisco Federal Reserve President Williams will speak on the outlook. In our view, William’s supports 3-4 rate hikes this year. We expect him to maintain these views; we look to his comments for his preferences on the timing of balance sheet runoff.
Our View
The ESH17 sold off down to 2259.00 last night and is trading 2266.25 as I was finishing off this morning’s Opening Print. That’s only 10.75 handles off its all time contract high. I think part of the selling we have been seeing over the last few days is indeed tied to the Trump inauguration later this week. Don’t forget it’s also the January options expiration week so I suspect there will be a lot of ups and downs. This morning we have a small economic calendar highlighted by William Dudley from the Fed speaking. Our view is with the ES selling off the last few days that we see some type of Mutual Fund Monday trade / higher prices initially. Sell the early to mid-day rallies and buy weakness. Most people think the ESH is going down this week and it may, but not today!
Download all of the January expiration stats here.
Everybody out of this pool.
Under olive spells trouble but this is not my specialty.
Chaotic markets coming to World markets immediately ahead.
Best
Al Palmer
Market Vitals for Tuesday 01-17-2017
[gview file=”https://mrtopstep.com/wp-content/uploads/2017/01/Market-Vitals-17.01.16.pdf”]
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets are trading lower: Shanghai Comp +0.17%, Hang Seng +0.54%, Nikkei -1.48%
- In Europe 10 out of 11 markets are trading lower: CAC -0.71%, DAX -0.97%, FTSE -0.44% at 6:00am ET
- Fair Value: S&P -5.41, NASDAQ -4.53, Dow -79.23
- Total Volume: 1.2m ESH and 3.5k SPH traded
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