S&P 500 FUTURES: IF AT FIRST YOU DON’T SUCCEED, TRY, TRY AGAIN

MrTopStep.com

The S&P futures have gone a long way over the last 25 years. From terrorist attacks to recessions, from the higher cost of energy to zero rates to Gulf War I and II, from the credit crisis to the flash crash. Despite all that, the U.S. equity markets are not far off their record highs. According to TrimTabs, an amazing $39bil has gone into stock funds in the first 10 trading days of the year. While it may be clear sailing right now for the S&P 500 futures, history has taught us that the current rally has not gone without some big letdowns.

 

Our desk was on the floor during the Black Monday ’87 crash and we remember how the S&P went up every day for weeks before it crashed. We were there for the Friday the 13th ’89 mini crash. We remember the 2000 tech bubble and how stretched out the markets were, but there was no QE back then. Here are a few of the more notable crashes/selloffs we remember being part of ...

 

Mini crash: 1997 was the year of the Asian financial crisis. Asian markets buckled as investors dumped shares in overheated markets from Hong Kong to Thailand. Brian Shepard and I remember this all too well as we were in Bangkok at the height of the crisis. Soon after the selloff the S&P began to bounce again, only to be knocked back down three months later by the Oct. 27, 1997, mini crash. The mini crash was part of a global stock market crash that was caused by the Asian economic crisis. During that drop the S&P suffered its fifth largest daily loss. 

 

Russian financial crisis: In August of 1998 the markets sold off again during the Russian financial crisis and devaluation of the ruble. The crisis caused defaults and a moratorium on payments to foreign creditors.The slowdown in Asia hit sales of Russia's two main source of income, energy and metals. The World Bank and the International Monetary Fund gave over $22bil to stabilize the Russian markets. After further interventions and the revelation that $5bil of the loans was stolen on the day of the meltdown, Russia’s currency and bond markets imploded and its stock market  lost over 75% of its value. 

 

Dot-com bubble: In 1999-2000 came the tech/dot-com bubble. This brought in a new area of trading. Stock day trading rooms popped up all over the U.S. in early 1999, with young 19- to 25-year-old kids buying any dot-com company name they could get their hands on. It didn't matter if you had even heard of the companies, the craze was to just buy, buy, buy. You could see these traders from a mile away wearing shorts, puka beads and sandals at work every day. Old floor traders on the CME and CBOT had to hear about “kids” making $250,000 a day on some no-name stock. The Internet bubble or dot-com boom from 1997 to 2000 was one of the largest speculative bubbles in the stock market’s history and it came to an end on March 20, 2000, when the NASDAQ peaked at 5132 before closing at 5048. Most of the collapse occurred during 2000 to 2001 when big firms like Cisco lost nearly 90% of their value while other firms just disappeared completely. High-flying stock prices, overinvestment and a venture capital environment that overlooked traditional research and metrics were the 2000 dot-coms’ downfall and the end of the day trading stock room and its traders.  

 

9-11: On Sept. 11, 2001 the terrorist attacks on New York's Twin Towers caused another global stock market selloff. It was the third time in history that the NYSE was shut down. We were on the trading floor that morning and had just gotten back from Dubai. The attack sent financial shock waves around the world and caused the largest single insurance claim ever, $40bil. In 2002, after another selloff, the S&P double-bottomed in July and September and the markets started going up again. 

 

Chinese stock market bubble:  On February 27, 2007, the Shanghai Composite fell nearly 10% during the Chinese stock market bubble. The Chinese selloff wiped out billions in market cap. The selling in Asia ripped through Europe and pushed the Dow down 3.29%, 416 points.  

 

U.S. credit crisis: From 2007-2009 the S&P sold off more than 20%. In September 2008 several large financial institutions in the United States went out of business due to being overly exposed to securities that were packaged up in subprime loans and credit default swaps. This exposure eventually turned into the global credit crisis. The Bush administration signed into law the Emergency Economic Stabilization Act which helped to create the TARP (Troubled Asset Relief Program) to support the markets. In April of 2010 the S&P downgraded Greece's sovereign debt rating to junk, which sent worldwide stock prices lower and only furthered the European sovereign debt crisis. And last but not least, there was the flash crash on May 6, 2010, where the Dow dropped 1,000 points in a matter of minutes.

The S&P has more than doubled in price from its October 2009 12-year low and is now just 5.1% off its all-time high at 1565 set back in October 2007. The Dow Jones Transports closed at a record high last week and the Russell 2000 added 1.4% to reach an all-time new high. The VIX closed at 12.46, down 6.7% last week and down 37% in the last five trading days, its largest five-day drop since 1990. 

What we have learned is that the S&P can take a licking and keep ticking, but for how long? While the S&P is on a five-year high it’s important not to forget how unforgiving it can be when it starts to go the other way. 

 

S&P 500 LARGEST DAILY LOSSES:

 

 

Rank

       Date

   Close

Net Change

% Change

1

1987-10-19

224.84

-57.86

-20.47

2

2008-10-15

907.84

-86.76

-8.72

3

2008-09-29

1106.42

-102.65

-8.49

4

1987-10-26

227.67

-20.53

-8.27

5

2008-12-01

816.21

-72.4

-8.15

6

2008-10-09

909.92

-78.5

-7.94

7

1997-10-27

876.99

-64.65

-6.87

8

1998-08-31

957.28

-69.86

-6.80

9

1988-01-08

243.4

-17.65

-6.76

10

2011-08-08

1119.46

-79.92

-6.66

11

2008-11-20

752.44

-53.43

-6.63

12

1962-05-28

55.5

-3.65

-6.17

13

1989-10-13

333.65

-21.74

-6.12

14

2008-11-19

806.58

-52.45

-6.11

15

2000-04-14

1356.56

-83.95

-5.83

16

2008-10-07

996.23

-61.37

-5.80

17

2008-10-22

896.78

-54.89

-5.77

18

2009-01-20

805.22

-44.42

-5.23

19

1987-10-16

282.7

-15.38

-5.16

20

2008-11-06

904.88

-47.52

-4.99

 

 

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. 

For today: During Monday’s abbreviated session the ESH (mini S&P) closed up 4 handles at 1483.00 on 118k contracts. The high Monday night was 1484.25. Whatever your view, the S&P futures are up over 100 handles since making their 1383 low just a few weeks ago. We lean to selling the early rally, and we may look to buy weakness, but we think the S&P could be due for a pullback. As always, keep an eye on the 10-handle rule and please use stops when trading the S&P.   

  • It’s 7:15 a.m. and the ESH is trading 1477.25, down 1.75 handles; crude is down 9 cents at 95.95; and the euro is down 5 pips at 1.3320.
  • In Asia, 6 out of 11 markets closed lower ( Shanghai Comp. -0.56%, Hang Seng +0.29%). 
  • In Europe, 10 out of 12 markets are trading lower (CAC -0.51%, DAX -0.79%).
  • Today’s headline: “S&P 500 Futures Steady before Key Data and Earnings from J&J”
  • Total volume: 120k ESH and 800k SPH traded
  • Fair value: S&P -3.73, NASDAQ -3.59
  • Economic calendar: Today:  Mr Top Step Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-1-18-2013  

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DISCLAIMER: The information and data in the following report(s) 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. MrTopStep, its officers, directors and its contributors may, in the normal course of business, have position(s) which may or may not agree with the opinions expressed in this report. 

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