A NY Times Bombshell Comey Memo roils markets as some feared the worst case scenarios for Trump and his pro growth policy agenda. The news algos grabbed those headlines and sold all night and into the open today. Once the bulls were trapped they were sitting ducks as the bears and margin clerks took over. After it was all said and done the ES closed down 1.6% with over 2.7 Million contracts traded! The low Vix which we have been talking about for weeks came back to bite the option writers today. It closed up 46% today to 15.59. Today was the biggest down day since September 9th. Where do we go from here? The good news is that there was some panic selling today which can happen near market lows. The bad news is that the market may require some time to repair the technical damage done today. At least the volatility and volume are back for now and that offers traders many more opportunities.

Many investors and traders have been waiting for a pullback to buy. In bull markets the sell offs are scary and usually news related. But it is important to remember that most selloffs are healthy and help recharge the market for further gains in the future. Today we saw some initial signs of capitulation with the ES volume of 2.7 million contracts roughly 3 times that of yesterday’s. It reminds me of the ES selloff on February 27th 2007. The VIX traded below 10 in weeks before that date. The ES sold off hard that day after China sold off 10% the night before. The market rallied the next day but made a lower low over the following weeks. The ES ended up selling off 6.70% before the bottom on March 14th. I would not be surprised if something similar happened this time as well. The analogs are never exact but can give you a rough idea of what may playout.

MrTopStep

The Dow Jones futures closed down 339 points or -1.62%, S&P 500 emini futures (ESM17:CME) closed down 39.75 handles or -1.66% at 2357.25 the worst one-day fall for the two indexes since Sept. 9. The Nasdaq 100 futures (NQM17:CME) closed down a whopping 145 point or -2.53% to 5579.25 and the U.S dollar fell for the 7th day in a row and is on track to give back its post election gains. Investors are becoming more concerned about President Trump’s ability to deliver on his agenda.

Most of the people that read the MrTopStep Opening Print do not come here for the news. You can get that at the Wall Street Journal or Bloomberg. What most people come here for is to get a feeling of what’s going on and what I call the ‘overall price action’ of the S&P. I know I am not always right but who is so here is what I think. The first part is that the sell off in the ES, NQ and YM has been a long time coming and when a panel on @CNBC was saying the VIX was a ‘dead indicator’ and no longer ‘prevalent’ we all should have bought puts. I know, some of you will say that it’s in hindsight but the truth of the matter is when there is such a high level of complacency and the talking heads start discounting the VIX when it’s at record lows I think you have to take a step back. The last time the VIX closed under 10 2 times was in 2014 and not long after it jumped 150%. You have to respect the ‘odds’ I did not write the book but I can not tell you how many times at our S&P desk on the floor that after the VIX fell under 11 or 12 that it wasn’t long after the the futures were puking. Under 10 is the VIX is what I consider an extreme. You can only fight the odds / stats for so long.

Like I said about I am not surprised that the markets sold off so much. It was the largest one day decline for the Dow and S&P since September 9 and the largest drop for the Nasdaq since June 24th. Is the decline over? I can’t say but I think the selling will exhaust itself at some point over the next few days. Can I go on longer? Sure but like the markets / algos digest the news and the ES will start to move back the other way.

While You Were Sleeping

Overnight, Asian stock markets saw a weaker trade as all markets closed in the red followed by a risk off European open where all markets are tracking lower. In the U.S. the S&P 500 futures opened the globex session at 2355.00 and for the Asian session pushed higher to 2367.00 before tanking after the Euro open down to a session low of 2344.50 this morning representing a gap fill. As of 5:44 am cst the most recent print is 2348.50 down 9.00 handles on volume of 312k.

In Asia, 11 out of 11 markets closed lower (Nikkei -1.32%), and in Europe 12 out of 12 markets are trading lower this morning (FTSE -1.28%). Today’s economic calendar includes the Weekly Bill Settlement, Jobless Claims, Philadelphia Fed Business Outlook Survey, Bloomberg Consumer Comfort Index, Leading Indicators, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 52-Week Bill Announcement, a 2-Yr FRN Note Announcement, a 2-Yr Note Announcement, a 5-Yr Note Announcement, a 7-Yr Note Announcement, a 10-Yr TIPS Auction, Loretta Mester Speaks, Fed Balance Sheet, and Money Supply.

Our View:

I hate to include politics into the Opening Print but that what’s driving the markets right now. That said I am not in the camp that Trump is going to get impeached. I think the idea is ridiculous. What is apparent is how much the democrats hate Trump. At the end of the day it sad to see how splintered the government is and how resistant it is to change.

Like Trump or hate Trump he is our president and we look like idiots on the world stage. Our view, we had half of it right yesterday, sell the early rallies but the buy breaks side of it was not where the money trade was. The bears have been looking for a reason to sell the ES and the news give them good cause and based on the record level of volume there could be more downside but I think most of the damage is done. The problem for the bulls right now is the Fridays expo stats are weak. I want to get a look at the ES price action after the 8:30 futurs open.

PitBull: CLM osc 27/-12 turns down on a close below 50.04, ESM osc -8/13 turns up on a close above 2407.20, VIX osc 21/-11 turns down on a close below 1013

As always, please use protective buy and sell stops when trading futures and options.

Danny Riley is a 38-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.

• • In Asia 11 out of 11 markets closed lower: Shanghai Comp -0.45%, Hang Seng -0.62%, Nikkei -1.32%
  • In Europe 12 out of 12 markets are trading lower: CAC -1.16%, DAX -0.84%, FTSE -1.28%
  • Fair Value: S&P -1.55, NASDAQ +2.21, Dow -19.79
  • Total Volume: 2.8m ESM and 10.5 k SPM traded

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