By Danny Riley
It was a long, bad week for local traders in the CME Group’s S&P 500 futures and options pits. After making a 1262 low on June 4, the futures contract started moving higher and on Sept. 14 made a high at 1474.75. The S&P futures rallied more than 210 handles in three months, and during that time no one was talking about the fiscal cliff. While we all knew about the cliff, it really did not become front and center until the election. Most Americans thought President Obama would get re-elected, but Wall Street was making a bet that he wouldn't. A few weeks before the election the Republicans started saying the polls had shifted and Romney was going to win. Wall Street bought into it. With a Republican in office the fiscal cliff could be averted and the Bush-era tax cuts would remain in place and the stock market would continue higher. That didn't happen.
The locals in the S&P 500 futures pit are opportunists. They do not care if it’s good news or bad news, they like to get in and get out. That is what locals do; they scalp. If the S&P is going up or down, they want to go along for the ride. They don't really care what direction as long as they are making money. It was a rough week for the major indices; the Dow fell -2.1%, the S&P and the NASDAQ both lost -2.4%. The question remains: Should we be surprised? No, not if you take into account that all the major indices fell between 5% and 5.5% just after President Obama’s first win in 2008. While last week’s losses are not as bad as Obama’s first run for office it still did not paint a pretty picture.
Monday Nov 5 SPZ +6.5
Tuesday Nov 6 SPZ +13.2
Wednesday Nov 7 SPZ -36.1
Thursday Nov 8 SPZ -13.8
Friday Nov 9 SPZ +.40
With all the algorithmic and program trading that goes on in the S&P futures, many traders overlook the importance of how history plays its role in the ups and downs of the markets. Perhaps then it would not have been such a big surprise that the markets acted as they did.
Ned Davis S&P cash study for the November options expiration.
To keep up with this week’s historical study for the November options expiration, click here: http://www.mrtopstep.com/ndr-opex-november-expiration-study-opex/
Our view: If you were on the MrTopStep futures chat last week you would have seen me calling out where all the sell stops were and all the sell programs that hit the S&P Wednesday and Thursday. You also would have seen several of our traders calling the markets lower. On Friday you would have seen our trading rule called Counter-Trend Friday in action. Today there are no scheduled economic reports, but there is a euro-zone finance minister meeting on how to plug another hole in Greece’s finances. Our view is it’s going to be a very long day; we lean to buying weakness. As always, keep an eye on the 10-handle rule and please use stops.
Danny Riley is a 34-year veteran of the trading floor. He has helped run one of the largest S&P desks on the floor of the CME Group since 1985.
- It’s 6:00 a.m. and the ESZ is up 3 handles at 1378.75, crude is down 18 cents at 85.89 and the EC is trading 1.2728, up 12 ticks.
- In Asia 8 out of 11 markets closed lower (Shanghai Comp + 0.49%, Hang Seng +0.21%)
- In Europe 6 out of 11 markets quoted are trading modestly higher (CAC -0.10%, DAX +0.25%)
- Today’s headline: “U.S. Stock-Index Futures Climb as Apple Gains”
- Economic calendar: U.S. holiday: Veteran's Day observed - Stock market open, bond market, banks closed
- S&P futures volume: 2.54mil ESZ and 11k SPZ traded
- Fair value: S&P +2.50, NASDAQ +9
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