Yesterday was not just another slowdown and grind, the price action strongly resembled the summer sideways slumber. The S&P 500 futures traded an inside day on Wednesday, and after a 10.25 globex range, the S&P’straded in a 9.25 handle range during cash hours. The ES was trading 2150.50 on the 8:30 cst open, up 5.75 handles, and immediately began to grind higher. It became apparent that the highs were going to be limited during the session and that the bears were not going to take over. This eventually led to what we call “thin to win,” when the S&P is in an uptrend and we are told to “never short a quiet market.” This type of price action typically goes nowhere fast, but it does give opportunity for those who wish to buy and hold throughout the session.
Where Have All The Traders Gone?
I have been reading about the many changes in the retail brokerage business since the summer. Several forex clearing houses, including Philips USA, TradeStation and Interactive Brokers, have completely shut down their forex operations. Meanwhile, FXCM just sold DailyFX, which they acquired not too long ago. Some of these changes are due to regulation, but it has to be deeper than that, because regulation has always existed. The basics are that these ventures are no longer profitable enough to qualify offering them. This is not just limited to the retail forex venue. I have been reading for months how various retail brokerages have been reducing their employees.
MrTopStep has a unique perspective in the retail trading world. We have offered services to retail subscribers for years now, and hear all the chatter about how a lot of subscription services are suffering. One thing I have been saying since the 2008 credit crisis is that the retail traders that came on the scene with the internet age are dying off, and I think I know why.
Death of Retail Trading?
In August 2015 the S&P 500 suffered its first correction since 2011. The correction seemingly came out of nowhere, then recovered with the best performing month ever for the S&P. That caught everyone even more off guard. The correction was followed by a slow market until the Fed raised interest rates, then another 10% sell off occurred. Furthermore, the markets again recovered with resiliency, and even the Brexit 7% sell off was recovered within days. This led us into one of the quietest summers of all time.
After all of this, traders were expecting and hoping for a typical September sell off, and it didn’t come. We’re are a week into October and it has yet to arrive, even with uncertainties over the Fed, elections, Brexit ramifications etc… The markets are stable, and the retail traders who have been on the wrong end of a bipolar market for over a year, are now starting to give up and call it quits.
Not only is this affecting the retail world, several hedge funds are not faring well in this price action. A few days ago Perry Capital in New York announced their closure and put out a statement saying:
“Although I continue to believe very strongly in our investments, process and team, the industry and market headwinds against us have been strong, and the timing for success in our positions too unpredictable,”
This is not an isolated event. Time publication and Bloomberg noted this year that more hedge funds have closed than opened in the last 12 months. CNBC reported that the fund closures by mid year 2016 were at the same levels as the 2008-2009 credit crisis. The new world order of trading is not friendly. Some of the rules carry over, but what used to work doesn’t always work anymore. Trading is like life, we must adapt. Now the old guys on the floor that used to carry pencils and paper charts are fighting the Ph.D. quants who have no market feel, only statistics and probabilities. It’s like I tell my Periscope audience every day:
“These are not your father’s markets nor are they his charts.”
While You Were Sleeping
Overnight markets in Asia were mostly modestly higher. When Europe opened up the markets turned lower as the ESZ made a high of 2155.75 on the Euro open. There was a selloff down to 2147.50, and is now trading at 2149.75 at 6:32 am cst, unchanged on the session.
In Asia, 7 out of 10 open markets closed lower (Nikkei +0.50%), and in Europe 9 out of 11 markets are trading lower this morning (DAX -0.63%). Today’s economic calendar includes the Weekly Bill Settlement, Chain Store Sales, Challenger Job-Cut Report, Jobless Claims, Gallup Good Jobs Rate, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, 4-Week Bill Announcement, 3-Month Bill Announcement, 6-Month Bill Announcement, 52-Week Bill Announcement, 3-Yr Note Announcement, 10-Yr Note Announcement, 30-Yr Bond Announcement, Fed Balance Sheet and Money Supply.
Our View: Today’s calendar has a lot of items, but nothing on it that will be market moving. We said that the S&P’s would remain quiet into the NFP, and it looks like this will continue. Yesterday there was no 10 handle pullback to buy, nor a 10 handle rally to sell. Today may not be as quiet but will likely not offer much in terms of opportunity. We want to buy the early pullback or sell the early rally. We’re looking hard at a seven handle move above or below the open to start looking for a fade.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 out of 10 open markets closed higher: Shanghai Comp closed, Hang Seng +0.69%, Nikkei +0.47%
- In Europe 9 out of 11 markets are trading lower: CAC -0.38%, DAX -0.40%, FTSE -0.09% at 6:00am ET
- Fair Value: S&P -6.17, NASDAQ -6.13, Dow -87.38
- Total Volume: 1.3mil ESZ and 2.6k SPZ traded
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