About a year and a half ago I left the trading floor. Part of it was for health reasons, and the other part was, I did not know the options hand signals, and became a possible error risk. On the floor of the CME sitting in the S&P futures and options pit, you gained a feel for what was going on around you. With the last 7 trades read on the board, it came down to following the S&P index arbitrage buy and sell program levels, and zeroing in on the boards for patterns that might signal a buy or sell, or some type of reversal. As the robots continue to push the retail out of the game, it will be trading robot against trading robot.
In the last few days, algorithmic trading in bonds, S&P, and currencies, has been at a high pitch. Whenever volume and range are so low for an extended period of time, there will eventually be an expansion. In this case we think the pick up or expansion of the volumes and ranges are directly correlated with the higher level of algorithmic trading due to all the headlines constantly hitting the tape about Greece. The news wire algorithmic programs have definitely picked up the pace, and the volumes and ranges are showing it. After the markets get into the “choppy” phase like they have, there tends to be a trend change and the algos pick right up on it. One of the places that have always been considered a safe haven is the bond market. Because of its slower pace, many system trades take a pass on algo trading bonds, but with the talk of rate hikes later in the year, the futures interest markets have gone ballistic. Its a fact that more of this type of extreme movement in the bond market is starting to scare people, and it’s not just your everyday futures trader either. In the last few weeks, big firms like JPMorgan and Deutsche Bank, are worrying about liquidity. Earlier in the month Pacific Investment Management Co., PIMCO, in its newsletter said “World financial markets appear more susceptible to flash crashes and bouts of volatility, as rules designed to make the system safer have depressed trading activity.” What is happened is, the world is getting used to living with historically high debt, with zero borrowing cost, and its now starting to show up as slower and slower growth. Goldman Sachs Gary Cohn said:
“The concern is bond investors looking to buy, or especially to sell, will face wide prices swings and higher costs to get a transaction done. The problem is on the days when you need liquidity, it probably won’t be there,” said Cohn at a Deutsche Bank investor conference.
At the end of the day we live in a risk on, risk off trading environment, where nothing stays the same for long. As investors move money from stocks to bonds, the algorithmic trading programs have shifted gears over to interest rates at a much higher level than ever before, and if there was a bond crash the banks won’t be buying. I worked in the bond pit at the Chicago Board of Trade, it was the largest futures pit in the world with over 600 order fillers, locals and clerks. Today the bond pit has less than 15 people standing in it. As electronic trading took over most of the volume in the pit, and the traders disappeared, so have all the bank traders in NY, replaced by a computer. Some day this will come back to haunt us.
In Asia 7 out of 11 markets closed lower, and in Europe 12 out of 12 markets quoted are trading lower this morning. Today’s economic calendar start with the May Jobs Report, William Dudley from the fed speaking and Consumer Credit.
Our View: We figure there could be some more weakness after yesterday’s close. My call for higher prices this week got run over by Greek headlines. I should have put more thought into this because I kept saying the Greeks would default, thats not bullish at least initially. Our call is to get a look at the early price action. We think the ES will rally, but we are just not sure how far they will go.
“Greek Algo Headline Hell, and ESM 2095.10 – 50 DAY M.A.”
MrTopStep is not getting older we are getting better. If you have taken the boot camp before, take it again. If you have never joined, MrTopStep wants you!
BootCamp sign up https://mrtopstep.com/landing_pages/bootcamp/
- In Asia 7 of 11 markets closed lower: Shanghai Comp. +1.54%, Hang Seng -1.06%, Nikkei -0.13%
- In Europe 12 out of 12 markets are trading lower : DAX -1.27%, FTSE -0.85%, MICEX -0.01% , GD.AT -4.75% at 7:00 am CT
- Fair Value: S&P -1.52, Nasdaq -1.01 , DOW -12.58
- Total Volume: 1.7mil ESM and 12k SPM traded
- Economic calendar: May Jobs report, William Dudley speaks, Consumer Credit. .
.
.
[s_static_display]
No responses yet