ESZ16 vs. CLX16
As Sunday rolls around, and we all know we have to go back work, many people get what’s called the ‘Sunday night blues.’ For the S&P 500 futures, that meant higher prices on the Globex overnight trading session, or what we call part #1. The next part was the news that AT&T was going to buy Time Warner. That news helped push the ES futures (ESZ16:CME) up 11.00 handles, the Dow Jones futures (YMZ16:CME) up 110 points, and the Nasdaq 100 futures (NQZ16:CME) up 23.75 points on the 8:30 CT futures open. After the open the ESZ rallied 3.25 handles, up to an early high of 2149.00, but it was the Nasdaq futures that took off. In a matter of a few minutes the NQZ16 rallied another 30 points. The firm tone in the equities did not seem to care much about the energy markets very much.
Around the time the S&P made its high, crude oil futures were trading at the 50.30 level. Unlike the firmer tone of the ESZ (ESZ16:CME) crude oil futures were acting weak. After the CLZ made an early high at 50.52 the futures started breaking down. I mentioned the weakness on Twitter and said I thought the CLZ (CLZ16:NYM) acted weak and that the futures would run the sell stops down to 49.80. Not very long after that oil started breaking the 50.00 level and accelerated down to a new daily low at 49.62. A slow grind higher followed for the rest of the day making a late day high at 50.68. Despite the 1.00 moves up and down in the CLZ, the S&P barely reacted to either move.
In terms of the day’s trade, it was a very slow trading day. In terms of the day’s overall volume, when you take out the 152,000 contracts traded on Globex Sunday from the day’s total of 850k, and then subtract 65% for algorithmic and program trading, total customer volume for the day drops down to 300k. We know Mondays start out slow and tend to be the lowest volume day of the week, but as we get closer to the election, that number may drop even further. With regards to the S&Ps overall tone, it looks and feels firm, but I’m just not sure how far it can go before a few down days show up.
No Up or Down 3 In A Row
It’s been a great time for the option premium sellers. After the S&P sold off down to 2100 on September 12th, and then down to 2107 on October 13th, the ESZ16 has been mostly up one day and then down two days. The last time the ES had 3 higher closes in a row was back on September 7th, and the last time the futures fell 3 days in a row was back on Aug 26th.
While You Were Asleep
Overnight stock markets in Asia were mixed. Europe opened up stronger as the ESZ chugged along grinding higher. The globex session opened at 2144.75, made an early low of 2144.00, then bid up to 2149.75 just after the Euro open. After that the futures got a little weak, The ES traded down to 2145.50 at 5:53 am cst, up 1.25 handles but 4.25 off the highs, with volume at 68K. Today has a busier calendar, but with yesterday’s sub 10 handle cash hours range and this morning’s noticeably low volume, we could be in for another pain session as 2150 has become that battle price now.
In Asia, 6 out of 11 markets closed lower (Shanghai +0.76%), and in Europe 7 out of 11 markets are trading higher this morning (DAX +0.36%). Today’s economic reports includes Redbook, FHFA House Price Index, S&P Corelogic Case-Shiller HPI, Consumer Confidence, Richmond Fed Manufacturing Index, State Street Investor Confidence Index, a 4-Week Bill Auction. a 2-Yr Note Auction, and Dennis Lockhart Speaks.
UBS and the World’s Largest Trading Floor
What happened to the stock and futures markets? All you have to do is look at the trading floor’s of some of the big banks to answer that. When I started doing the UBS program trading business, or S&P index arbitrage business, there were thousands of traders, sales and desk people. After the credit crisis, and all the government’s new regulations, the lucrative ways many of these banks used to make money vanished. One by one places like Bank of America (one of our largest desk accounts) just disappeared. The days of the big bank trading desks was over, and so were all the thousands of jobs, and income, they made. What’s left is a mix of automated execution platforms, high tech algorithmic, and HFT trading systems. So next time you think you got screwed by the S&P futures, remember… You can’t yell at the desk people because they are gone and will never return.
Our View
Goldmans end of the year call for the ES is 2100. In 2017 they say the ES will close out the year at 2200.00, and in 2018 the ES will close out at 2300. It all seems pretty silly, and I have to ask… what’s happened to Goldman? They used to be so good calling the jobs number and calling out year end prices, but those days have passed.
I wonder how many traders have lost jobs at Goldman since the 2007 credit crisis started? The big firms like GS, B of A, Citi and JP cant make money like they used to. They are all sitting around waiting for the day the the Fed starts pushing borrowing costs higher. Deutsche Bank used to be huge too, but after the recent beating it’s taken, you can bet the bank starts letting people go. It’s my guess that bank prop trading will be the first to go. The big firms can’t trade against their customers anymore and most of the market making is done electronically. The new regulations have put a stranglehold on the big trading desk, most of which are now gone. Our view; we lean to selling the early rallies and buying weakness.
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 6 out of 11 markets closed lower: Shanghai Comp +0.12%, Hang Seng -0.17, Nikkei +0.76%
- In Europe 7 out of 11 markets are trading higher: CAC +0.16%, DAX +0.36%, FTSE +0.46% at 6:00am ET
- Fair Value: S&P -5.97, NASDAQ -7.64, Dow -83.90
- Total Volume: 1.0m ESZ and 4.8k SPZ traded
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