S&P 500: BIG VOLUME AND LITTLE TRADE

MrTopStep.com

There were only a few locals in the S&P pit Monday morning. It was not just because it’s the summer. It is common knowledge that front-month order fillers and locals hate the S&P 500 futures rollover.

Back when there were over 400 locals in the pit it may not have been as noticeable as it is now, but clearly there were fewer locals in the pit during the last week of the roll. The reason is simple -- when the switch is occurring, many of the big institutional accounts focus on rolling positions, thus taking away from the daily outright trade in both the big and e-mini S&P. Yesterday morning it was very noticeable as there were more traders / locals in the spread than in the outrights.  

If you're on our instant message then you already know how we break down the volumes. Here is an example of what we sent out today. You may be one of those that says “volumes don't matter.” In our book they do, so today I am going to show you what the total volume looks like when you strip out all the pre-market Globex volumes and S&P roll (spreads).

SPM 52,800

SPU 48,700    

= 4,100 in the pit. The rest of the volume was all SPM/U spreads

ESM 884,000 = 500k of that volume came from the ESM/U spreads

ESU 2,100,000 - 350,000 (Globex) - 500,000 from the ESM/U spread = 1,250,000 total volume in the day session.

1,250,000 ESU total day trade volume - 65% for program trading = 437,500 ...

It all comes down to volume, and after several weeks of what we consider above-average volumes of 1.8mil to 2.8mil ESMs a day, the rollover and traders taking time off has showed up big time in the index markets.

And always remember, the algos will getcha if you don't watch out!

Our view: Asia closed mostly higher and Europe is up. Today is the start of the two-day Fed meeting. There is a real probability that the Fed pulls back from using the word “taper” and says they must continue to keep rates low. Generally things tend to slow during a two-day Fed meeting and we suspect that’s how this will go until the Fed announces its decision and Bernanke’s press conference at 1:30 CT on Wednesday. No one is saying it, but things could really start to slow after this week’s quad witching and we do not want to see people get caught in the chop. Our view is the S&P wants to run the upside stops. Additionally when you look at the CME’s e-mini S&P open interest, the congestion comes in from 1620 to 1660. The other thing we can say is this is a perfect environment for the algos -- most professionals rolling positions and not trading the outrights and many retail traders taking time off. You could see it in yesterday's late-day 16-handle selloff and 10-handle rally. We lean to buying weakness. As always, keep an eye on the 10-handle rule and please use stops when trading.

Ned Davis June Expiration Study (of last 29)

Tuesday up 18 / down 11

Wednesday up 12 / down 17

Thursday up 18 / down 11

Friday up 20 / down 8  

Ned Davis Expiration Study for June: https://www.mr-topstep.com/index.php/equities/3260-expiration-study-for-june

  •     It’s 8 a.m. and the ES is trading 1635.25, up 1.5 handles; crude is up 9 cents at 97.86; and the euro is up 35 pips at 1.3383.
  •     In Asia, 7 out of  11 markets quoted closed higher (Shanghai Comp. +0.14%, Nikkei -0.20%).
  •     In Europe, 7 out of 12 markets quoted are trading higher (DAX +0.15%, FTSE +0.71%).
  •     Today’s headline: “S&P Futures Seen Higher as Two-Day Fed Meeting Begins”
  •     Total volume: 2.1mil ESU and 49k SPU (46k SPM/U spreads traded)
  •     Economic calendar: Start of the 2-day Fed meeting, CPI, housing starts and Redbook
  •     Fair value: S&P +4.01, NASDAQ +6.44
  •     MrTopStep Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-6-17-2013

 
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.

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DISCLAIMER: The information and data in the above report were obtained from sources considered reliable. Opinions, market data, and recommendations are subject to change at any time. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any commodities or securities.

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