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Warning lights are flashing in the S&P 500, and the reason the lights are flashing is a historical drop in volume for the ES futures. During the credit crisis in 2009, the ES did record volume of 6.9 million contracts traded in one day, but as more and more regulation bears down on the markets there seems to be a lot more computers trading and a lot less public trading going on.

Last week’s low volume has been followed by this week’s low volume. Below are the last 4 trading weeks’ daily volume in the CME Group’s S&P e-mini futures contract. The average is 1.2 million, but volume in March was down 15% year over year. For April we are halfway through the month but only have 1/3 of the volume for the entire month of April last year, which suggests this month could be 20% or more lower volume year over year.

3/23 950,000
3/24 1,200,000
3/25 1,800,000
3/26 1,850,000
3/27 1,550,000
3/30 1,200,000
3/31 1,600,000
4/01 1,800,000
4/02 1,050,000
4/03 100,000 GOOD FRIDAY
4/06 950,000
4/07 1,050,000
4/08 1,200,000
4/09 1,200,000
4/10 900,000
4/13 1,050,000
4/14 1,250,000
4/15 1,050,000
4/16 1,100,000

I have never pretended to know it all, but in this case I think there are several reasons for why the ES volumes are so low:

  • Many see the S&P as being up too high going into a potentially weak earnings season.
  • It may sound funny, but the S&P is actually up too high to buy and too quiet to sell for most investors.
  • As more and more bank prop trading desks and hedge funds are shut down, there has been a noticeable drop in volume.
  • Europe’s new QE program continues to support the European markets in a very positive manner.
  • US investors are leery about the 6th year of the bull run, with more and more investors choosing to stand on the sidelines.
  • And the most important reason why the markets are so quiet and volumes are down so much is the markets are not moving and a lot of the HFT traders and their programs are trading overseas markets.

Where From Here?

Both on and off the trading floor the PitBull depends on me for my streetwise view of the markets — how they feel and where are they going. I know when I talk to him I have to be able to not just give him a feel but explain what I am seeing. Over the last few weeks he too has become concerned about where all the volume has gone. Yesterday JPMorgan sent this out in a daily note, and if there was anything that describes the current goings-on, it’s this paragraph below.

JPM Macro Update:

Pain + discomfort – the longer the index sits here, the more nervous investors are growing, with an increasing amount of people fearing a powerful upside break for which not many are prepared – this anxiety is becoming more pronounced and as a result “pain” is a larger factor behind trading lately. That energy is leading the market is only compounding investor discomfort – Brent prices surged 5% Wed, clearly breaking up through the 100day MA. The S5ENRS index is up close to 7% MTD, far outpacing the broader SPX (which is up a bit north of 2% over the same period).

I don’t know when the lull in the action will be over and things start to pick up again, but what I do know is that things will not stay like they are forever. It’s times like these that people become complacent and it’s also a time when things can change fast. I’ll leave you with one final thought. Yesterday the ESM15 did 1.1 million contracts, with 210,000 of that coming from Globex. If you subtract the 210,000K from the day’s total of 1.1mil you come up with 890,000K, and if you subtract (let’s be nice) 70% for program trading, the total number of ES that traded in the day session is only 623,000K. I think you can take it from there.

In Asia 10 out of 11 markets closed lower and in Europe 12 out of 12 markets are trading lower this morning. Today’s economic and earnings calendar includes the Consumer Price Index, consumer sentiment and leading indicators.

S&P Futures: Up 9 / down 2 of the last 11, up 6 of the last 7 or up 3 in a row

Our view: How are we going to get the S&P to move off its current low-volume grind? To tell the truth, I have no idea. Is it going to be an event? An out-of-whack economic or earnings report? I don’t know what’s going to change, but I know it can’t stay like this for very long. Is the S&P going to explode higher? I don’t think so, but I cannot rule out. I do think the public is underinvested in the stock market right now, so that too could feed on itself at some point. Today’s stats show the Friday of the April expiration as being up 16 / down 9 of the last 25 occasions, but there have been so many 2100.00 and higher rejections. As for the View, the ES was down over 17 handles in Globex and is trading 2088.00, down 12.75 handles. With the ES up 9 / down 2 of the last 11, up 6 of the last 7 or up 3 in a row it could be a rest day for the S&P.

“Pre-April Expiration Squeeze”


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. +2.20%, Hang Seng -0.31%, Nikkei -1.17%
  • In Europe 12 of 12 markets are trading lower: DAX -1.89%, FTSE -0.91%, MICEX -0.99%, Athens GD.AT -1.14% (at 6:00 am CT)
  • Fair value: S&P -6.85 , Nasdaq -8.14, DOW -81.18
  • Total volume: LOW 1.1Mil ESM and 3.7k SPM traded
  • Economic schedule: Consumer Price Index, consumer sentiment and leading indicators.

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