Collective Intelligence! Today started with December as the lead contract and the overnight volume was extremely low. 112k ESZ and 800 SPZ traded on Globex, SPZ trading range was 1689.70 – 1685.70. Wednesday’s regular trading hours (RTH’s), SPZ pit session trading range was 1682.50 – 1672.00 before settling at 1682.20, up 6.5 handles. Coming into today, the S&P 500 has been up 6 of the 7 trading sessions in September, and this month alone the December contract has rallied from the Friday, Aug. 30, settlement of 1624.60 to yesterday’s high of 1682.20. This, in part, is largely due to the Middle East/Syrian situation(s) and the ultimatums imposed by President Obama to Assad and his regime in an effort to aid the civilians in Syria and the neighboring allies of the U.S. as well as an attempt to prevent further chemical weapon atrocities by extremist/terrorist groups. Much of this political crap is above my pay grade – so I will stick to the markets – thank you.
It is my belief that it is safer to play the reaction to the news than to play the headlines themselves. Certainly the algos are set to decipher the news much faster than humanly possible. With that being said, it is safer to be patient and wait for the levels you are watching – pre-identified. The algos may be able to run the markets through support/resistance levels or they may be set to breach and hold – leaving the johnny-come-latelys owning the newly printed highs or lows – the wrong way! And that is part of what has happened when traders and investors sold into the end of August, following the run-up to double-top highs at 1705 in early August and in front of the historically weak September, aka “Septaper hype.” With the media playing up all the macro concerns from the 3% yield in the 10yr, Syria, FOMC/tapering and the debt ceiling to Bernanke’s replacement, traders as well as investors not only took some profits, but got too short in the hole. Then, take away, at least delay, the imminent Syrian retaliation threat, as all the while traders got more and more comfortable with the taper-lite approach and a respite in the climbing yield, and up we go (take your pick): “Climbing the Wall of Worry,” “Chasing Performance” or “Pain Trade” as the shorts felt the heat getting hotter and hotter the higher the equities went.
I would like to share one more observation regarding the roll/switch: As the September contract comes to a close, we as traders have obviously become accustomed to the prices/levels of the September contract. During the first few days of the roll, many traders still watch the expiring contract’s prices/levels, but trade the new contract – in this case the December contract. We call it price discovery – and we give ourselves a couple of days to become adjusted to the new pricing.
Today’s December S&P 500 pit session opened one handle lower to 1681.50 – 1681.00 before finding an early and tight range of 1683.00 – 1675.20 to sit in. The initial move lower held 1678.50 at 8:41 and by 9:30 traded a high of 1683.00 before trading a low of 1675.20 following more Putin/Assad rhetoric and debt ceiling political backdoormanship. The following bounce up to 1680.70 could not convert the opening range in the lightest volume in recent memory and sideways to slightly lower we went and went … as the indices took time to consolidate from the recent gains. At 2:45 the September e-mini contract showed 1.2M while the December contract showed only 500k – leading me to believe many are still nursing their September positions versus paying to roll them as of yet.
The early look on the closing imbalance showed (14:14) MiM – MrTopStep Imbalance Meter showing a slight 62%, $150M, to the buy side as the NYSE was approaching 465M in volume, a bit ahead of yesterday’s volume. The MiM was showing only (14:36) $124M to buy. At 2:45 the SPZ was trading 1676.50 area when the closing imbalance flipped, showing a modest $250M to the sell side, and the SPZ traded a new intraday low of 1675.00. The cash close traded 1683.10 before settling at 1678.30, down 3.9 handles on the day.
Brian Shepard and Jill Malandrino @TheStreet http://bit.ly/186FaiE
Beware…The U.S. government has returned from vacation, both the House and Senate are in session…with only days before the end of the fiscal year and before the current spending authority expires. Without action (including a one-month emergency extension) shutdown on Oct. 1. Treasury “X Date” May Hit As Soon As October 18: http://bit.ly/15T6Jv6