Scared and Confused
Trading futures is supposed to be about making quick bets, getting in, and getting out. While price ‘matters,’ so does the time in which you put the position on. The trade idea could be right, but the time of day could be wrong. As the S&P goes into its 7th week of narrow trading ranges one has to question what’s really going on. Even the good traders are not making money right now.
The S&P futures started falling early on Globex. The ES opened down 2.25 handles and traded in a 10.50 handle range. A low was made at 2135.25 and the benchmark futures continued trading in the bottom half of the range all day. We would like to say there was more going on, but there wasn’t. In the early goings the ESZ16 was moving, but after the initial up and down move, the futures fell asleep.
So what’s going on? Why has volume in the futures markets dropped so much? We do not pretend to know everything, but we are quite sure about one thing, the public is scared and confused. With the S&P up over 225% since its March 2009 low, and an endless sea of quantitative easing, the markets are stalling as more traders and the public become more risk reverse. There is no rush to buy more ETFs or put more money into your mutual funds.
Last night on CNBC network news there was a segment about people voting early in Florida. They were interviewing people and one ladys said she was ‘just glad it was over, I have been sick about this election for weeks.’ That seems to be the case for the stock market right now too. No one is buying or selling, and when you break down the volumes, they are some of the lowest of the year. We bet it will get worse before the volumes pick up. Spooky October is turning out to be the slowest October in 40 years.
Running In Circles
So where from here? That’s a great question, but before we can answer it, the S&P futures (ESZ16:CME) will have to break out of its mold. Over the last two weeks the futures have had a 31.25 handle range. Over the last 3 weeks the ES has had a 55.75 handle range, and over the last 4 weeks the S&P has had a 60.50 handle range. We continue to point out how the overall price action continues to be up one day and down the next, or up two days then down two days in a row.
The S&P has found itself running in circles with tighter and tighter trading ranges. Somedays the ES will be stuck in a 2 or 3 handle range for several hours before it actually makes its move. The time horizons have clearly changed, the S&P just doesn’t do what you want it to do, or at least not right away. Everything has to be timed correctly.
The big talk a few weeks ago was how bad the earnings were going to be. Time and time again the earnings forecasts point to weakness, but the reports come in better. Unless there is some gigantic economic or negative earnings surprise we think it’s going to be business as usual; a slow back and fill trade until the days leading up to the election and then the Fed’s November two day meeting. That’s when things will get dicey. Until then, my fellow traders, I only have one thing to say… Embrace the Chop!
While You Were Asleep
Overnight, global equities traded noticeably lower both in Asia and Europe, helping drag the S&P futures lower. From the 2134.75 open, the ESZ initially traded in a range of 2131.75 to 2135.25 before Europe opened. From there the market sold off hard down to 2126.75 before bouncing up to 2130.50.
In Asia, 9 out of 11 markets closed lower (Shanghai -0.50%), and in Europe 9 out of 11 markets are trading lower this morning (DAX -1.05%). Today’s economic reports includes the Bank Reserve Settlement, MBA Mortgage Applications, International Trade in Goods, PMI Services Flash, New Home Sales, EIA Petroleum Status Report, a 2-Yr FRN Note Auction, and a 5-Yr Note Auction.
Our View
There are lots of earnings and economic reports today. The week is like a winding top. Monday and Tuesday are the lowest volume days of the week, and Thursday and Friday are the highest volumes days of the week. If you asked me whether the S&P was going up or down, I would tell you to flip a coin. Who knows? If you asked me about crude oil, I would tell you it’s going to drop down to $46 a barrell. Look, its really important to understand how fast things are evolving. Both big and small accounts that try and trade futures get run over. The big $10 and $20 billion dollar funds are like deer in the headlights, and the only thing the little guy has on the big fund is we can turn the screens off and walk away for lunch or golf, they can’t.
It’s all fun and games with the IBs and the ex-prop traders trying to teach people to trade when they can’t make money doing it themselves. The only way to make it in these markets is to find your best levels, best bids, and best offers. In between is the mish mash that takes your money away. Our view, the ES is weak this morning. The Nikkei was down hard and then rallied. Yesterday was down, so today should be up. Buy the early weakness and sell the rallies. Wait to see what the guys with the better seats do after 1:30 CT.
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 -0.50%, Hang Seng -1.02%, Nikkei +0.15%
- In Europe 9 out of 11 markets are trading lower: CAC -0.76%, DAX -1.05%, FTSE -0.98% at 6:00am ET
- Fair Value: S&P -6.12, NASDAQ -7.86, Dow -85.40
- Total Volume: 1.2m ESZ and 2.8k SPZ traded
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