S&P DROPS AND VIX POPS

S&P DROPS AND VIX POPS

Despite the positive S&P cash study showing the August options expirations as a statistically positive week, the S&P futures closed weak last Friday settling at 1971.40, down 54 points. The global weakness in China and Europe finally caught the serious attention of the S&P futures (ESU15:CME) Sunday night, and into yesterday morning’s 8:30 CT futures open.

The CBOE’s volatility index (VIX) saw levels not seen since the credit crisis selloff in 2008, reaching a high of 53.29 before settling at 40.74, its highest close since October 2011. Crude oil futures were down to a multi-year low settling just above the $38 mark. There is no doubt that Monday’s selloff was one of the most notable days of selling in history, and by some standards, it was the most severe when considered point by point, but it was less severe than others when considering overall percentage. In any event, history was made.

GLOBAL FLASH CRASH

All the MOC selling that went on last week culminated on Friday’s close when the ESU15 traded all the way down to 1968.00, and $2.8 billion to $3.3 billion in stock was sold on the close. On Sunday night the S&P futures opened down 3.75 handles, and stayed in a 15 handle range until the Asian markets opened deep in the red, and Europe followed with selling. At 7am cst, the ESU15 was trading at 1900.50, down over 70 handles from the previous close. After making an early low at 1892, there was a small rally back to the 1910 area. The MiM data started pouring in at 7:32am, with an initial print showing over $600mil to sell, and never looked back. By the 8:30 cash open, the MiM showed $2.5bil for sale, and the ESU15 was locked limit down at 1870.00, down over 100 handles. From Friday’s 1971.40 close, down to the RTH 1831.00 limit down, the ES fell 140.4 points, then rallied 119 handles, all the way up to 1950.75, before selling into the afternoon to close at 1868.75, the same price as the 8:30 open, and down two ticks from a 100 handle decline close to close. In the US the Dow Jones futures (YMU15:CBT) were down as much as 1,150 points, the S&P (ESU15:CME) was ‘limit down’ at 1831.00, and the Nasdaq futures fell 282 handles.

When the futures markets reopened Monday night for Tuesday’s globex session, the S&P futures opened higher at 1871.50 and traveled up during the Asian session 50 handles to 1920, before falling back 35 handles in the Asian close/pre-Euro open, only to rally up to 1948.50 once the European market’s opened, up 76 handles. There’s no doubt that the bus became very full to the downside on Monday and that buy stops were going to be run, and it looks like some were hit during the overnight session, but with the globex rebound starting to top out, we may see even more sideways to down action today.

S&P 500 FUTURES TAKE A BEATING

The S&P took a beating last week. You can see as the volume picked up so did the level of MOC selling. One of the things we have constantly written about is how the MOC buying switched to selling on the last trading days of the March or the last trading day of the first quarter.

In Asia, 9 out of 11 markets closed higher (Shanghai Comp. -7.63%), and in Europe 12 out 12 of markets are trading sharply higher (DAX +3.97%). Today’s economic calendar includes the Redbook, FHFA House Price Index, S&P Case-Shiller HPI, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing Index, 2 Yr-Note Auction, and earnings from Best Buy Co Inc (BBY) and Toll Brothers Inc (TOL).

China Cuts Rates ;PBOC Injects $23.4 Billion Yuan

Our View: I told the Pit Bull that I thought we would come in and see China up, and the DAX up 4%, and that’s exactly what we are looking at. Clearly the headline news algos took the S&P much further than it should have gone. It’s been a big washing machine, washing everyone out to the downside, and now the S&P is ripping to the upside. As I finish the view part of the Opening Print, the ES that made a low at 2071.20 is now trading 2046.00, up 75 handles. This is totally insane, and there is absolutely no doubt the the algos have taken over. They say over 50% of the ESU15s traded on yesterday’s open was some type of computer guided program. I do not care what anyone says, we have never seen the S&P do what it’s doing. Our view is to sell the early rallies and buy the dips keeping in mind how big the swings are.

S&P Futures “Limit Dow”

And always remember to use stops when trading futures and options…

In Asia 11 out of 11 markets closed higher : Shanghai Comp. -7.63%, Hang Seng %, Nikkei %
• In Europe 12 out of 12 markets are trading sharply higher : CAC +4.20%, DAX +3.97%, FTSE +3.14%, MICEX +2.06%, at 6:00 am CT
• Fair Value: S&P -3.24, NASDAQ -2.26, Dow -29.76
• Total Volume: 5.2.mil ESU and 31k SPU traded
• Economic calendar: Redbook, FHFA House Price Index, S&P Case -Shiller HPI, New Home Sales, Consumer Confidence, Richmond Fed Manufacturing Index, 2 Yr-Note Auction.

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