Brian's Friday recap: Headaches for margin managers, opportunity for MTS traders
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The washout continues as the S&P 500 index has dropped about 5% from the highs, although the index is still up a healthy 10% on the year. The CME announces they are raising margins on Eurodollar positions effective Monday. Surely there are more hikes to come if this volatility continues to ripple through the market. Oh yeah, more margin calls too.
Today, following a two-day correction, the SPU gapped open 8.5 handles higher to 1592.00-1592.50, traded an early high of 1593.50 and drifted modestly lower with composure through the opening 30 minutes. So the equities showed they could bounce even as [ORCL] weighed on the tech sector and the Nasdaq market. However, the morning bounce did not last too long. At 9:00 1591 area was trading and by 9:42 yesterday's low of 1578 held the initial retest. After holding 1585 area at 10:05 a new intraday low of 1570.80 printed going into the European close at 10:33. We believe the margin managers were quite busy as the equities deteriorated. The SPU dropped about 10 handles in roughly 10 minutes, from 1582 area to new intraday lows of 1570.80 by 10:32 as the bonds continued to unwind down a full point. After the low was made at 1570.80 - Fimat sold 2,000 from 1576.50 down to the most recent low 1572 11:12-11:21ish. The index showed some willing buyers on the discounted price action and by 12:18 the bulls ran the small stops up to 1588 before dropping 10 handles by 1:08. As you can see, everybody is back in the pool as the bears and bulls are taking their turns running the market.
Jimmy_Ticks shared: The Vix over 20 is not the place for investors to get in yet, I'll give it two more weeks quite frankly I'd love a panic flush to the 200dma, that would set up the buying opp of the year. Corrections tend to last a month +/- a week, so maybe we have a week or so to go. As noted this week - these are day-trader markets or MrTopStep type of markets My view is twofold- Fed related sell-off: I think it caught many off guard, the aloofness of Ben's comments - secondly the pressure in the metals is forcing funds to liquidate some equity/bond positions to cover. Metals have been hit hard by the lack of inflation + reduction in easy central bank policies (forward guidance) - looking for some more repositioning, firefighting, rebalancing - then we dust off. We're still in secular bull market conditions - there is no huge credit stress, banking issues, recessionary environment or extreme inflation/deflation. So my view remains this is a correction, could last another week or two. Someone who is a much better TA (thinking SE, RV or WB) probably has a better price level for SPX than me. I have 1575/80 (100dma) and then roughly 1500 (200dma) as my main price levels.... but as someone with their head in the options market and a medium/longer term trader/investor- time is my better friend. Options wise - there is very limited action in speculative long calls - money is on the sidelines as options are defensive, either putting on new put positions to hedge, or adjusting already open put positions another 10 handles away. They sure are gary but they are doing a roaring trade today 16.3 million puts traded yesterday we're 192% above expected volume in options.
After holding 1578 area the SPU retested the opening range, trading 1592 area at 1:12 before fading back to 1588 at 2:24 and bounced to a series of lower highs and lower lows, electing small trailing sell stops under 1588 as the closing imbalance showed a small $80M to the sell side. On the cash close 1586.20 area traded before settling at 1584.10, up .2 handles on the day. Last Friday's settlement was 1618.40.
Brian Shepard is a 20-year exchange member of the CME Group.
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