MrTopStep Best of 2012: TODAY’S CME: FACES IN THE PIT

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                                    CME GRAIN ROOM

By Danny Riley
When electronic trading went global they turned the lights off at a lot of exchanges, but not at the Merc. At the Matif in Paris, the trading floor was notified that the exchanges were going to do “side by side” electronic trading. In other words, they were going to offer electronic trading and open outcry. A few weeks later they closed the floor. In Spain, in Germany, in England, one by one they all shut down. In London the LIFE had the major share of the Bund volume and when they shut the exchange and took it 100% electronic the volume shifted to Germany. In New York,  the oversized rooms of the NYSE have been reduced to only a few rooms. Across the street at the CBOE all of the open outcry stock options pits have been closed for years and the SPX and the OEX are 90% electronic.

MrTopStep is dedicated to setting the record straight; the trading floor of the CME group is alive and well. My name is Danny Riley. I started on the trading floor as a runner in the grain room 34 years ago. After running and working phones I went to the Chicago Board of Trade bonds and then went on to start up one of the largest S&P execution desks in the world. Our customers at the desk ranged from the $10 to $20bil hedge funds, banks and NY prop trading desk all the way to doing the royal Saudi family’s business in the S&P. We also started traveling to the United Arab Emirates in 1996 to do Sheikh Mohammad’s personal trading and in and out of ADIA. Our desk in the S&P has been part of every major stock market event since 1985; we are, as they say, battle-tested.

There have been a lot of stories in the news about the CME Group and how the futures pits have shrunk. That may be, but the option pits of the CME are packed. Today I am going to cover some of the pits. Remember  99% of all futures are traded electronically, but if you trade options on futures at the CME, 80% are executed via open outcry.

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                                     FINANCIAL ROOM

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The S&P futures pit: Bryan P. Cooley
Badge: COOL 
COOL has been in the futures business for 32 years. He has been a customer filling broker in the S&P futures pit for the last 20 years. During that time, he has seen the pit go from over 500 locals, order fillers and clerks down to 100 locals and clerks currently. When we asked COOL what he thought of the transition from the pit to electronic trade he said, “The S&P pit is still the best place for daily price discovery. In fact, some of the current locals in the pit helped to build the product by providing the liquidity needed in the world of supply and demand.”

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The 10yr note options pit: Eric Fawcett 
Badge: EF 
EF is an order filler in one of the CME’s busiest pits, the 10-year note options. When we went to see him yesterday EF said,  “Regardless of the screen, the pit still has big order flow and despite what the public thinks the prices for 10yr note options are done right here, in the pit.”

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The Eurodollar options pit: Matthew Casson
Badge: XCAS 
XCAS is an order filler in one of the CME’s busiest pits, the Eurodollar option pit. On a good day over 250 order fillers and market makers are in the pit. When we went to see him yesterday he said “The pit still remains the best place for liquidity. Open interest in the Eurodollar options is around 135 million contracts. Contraction in the business remains an issue, but our pit still does a ton of business.”

 

 

 

 

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Meats futures pits: Lou Schwartz
Badge: SWZ
SWZ is an independent order filler in the hog pit. “I have been on the floor for 42 years and have been part of all the transitions the CME has gone through,” Schwartz says, “The exchange will continue to survive and grow. Volume is down from last year’s record volumes but the pits are working fine, I don't expect that to change anytime soon!”

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Corn options: Sue Jackolin & Ed Van
Badges: MAX and VAN
MAX and VAN are independent top step order fillers in the corn option pit, one of the CME Group’s busiest commodity option pits. When we asked VAN where the pits were going, he told us, “We had a very busy summer and things have slowed down from that pace. Most of the paper in the corn options has been selling premium, expecting a docile market as we wait on the USDA Supply report on Thursday.” 

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All options in the grain room: Gary Sandlund from Futures International
Badge: GSS
GSS runs one of the largest grain floor operations in the CME Group. If you can't find GSS in the corn option pit, all you have to do is go to the bean option pit, where we found him yesterday quoting up a spread. I asked GSS how things were going for his operation and he told me he was “not as busy as we were, but it comes and goes.” What we know about GSS is that he is always busy executing some of the biggest orders in the grain room.

Don’t listen to what you hear, the CME floor still holds thousands of traders, order fillers, clerks and CME staff, and let’s not forget the runners and key punchers. These traders know that they live in a “man vs. machine” world, but that’s not stopping them from marching to the floor every day. The tradition of the CME Group trading floors runs deep in the Windy City and MrTopStep is here to set the record straight ....the trading floor of the CME Group is alive and well!

S&P FUTURES NET CHANGES FOR OCT

Monday, Oct. 1 +2.1 handles
Tuesday, Oct. 2 +4.0 handles
Wednesday, Oct. 3 +3.8 handles
Thursday, Oct. 4 +11.1 handles
Friday, Oct. 5 -0.30 handles
Monday, Oct. 8 -5.7 handles
Tuesday, Oct. 9 -13.9 handles
Wednesday, Oct. 10 -5.5 handles
Thursday, Oct. 11 +2.1 handles
Friday, Oct. 12  


              NED DAVIS S&P CASH STUDY FOR THE OCTOBER EXPIRATION

  • Friday (today)     up 19 / down 9 of the last 28 occasions
  • Monday              up 21 / down 7 of the last 28 occasions
  • Tuesday              up 12 / down 16 of the last 28 occasions
  • Wednesday         up 15 / down 13 of the last 28 occasions
  • Thursday             up 17 / down 11 of the last 28 occasions
  • Exp. Friday         up 16 / down 12 of the last 28 occasions

 

MrTopStep Closing Print Video: http://www.mrtopstep.com/moc-sell-320mil/

Our view:
The SPZ  futures closed out September at 1434.20 and yesterday the SPZ settled at 1428.40, basically down 6 handles on the month. Of the 9 trading days so far in October, 5 have been up, 4 have been down. Asia closed lower and Europe is down modestly. Above is the Ned Davis S&P cash study for the October S&P expiration. According to the stats, today has been up 19 / down 9 of the last 28 occasions and Monday has been up 21 / down 7 of the last 28. Our view is that we lean to seeing higher prices but we cannot rule out a test of yesterday’s 1421.25 Globex low.  As always, please keep an eye on the 10-handle rule and make sure you use stops.

  • It’s 6:00 a.m. and the ESZ is up 3.5 handles, crude is unchanged at 92.07 and the EC is trading 1.2977, up 39 ticks.
  • In Asia 7 out of 11 markets closed higher ( Shanghai Comp +0.10%, Hang Seng +0.65%)
  • In Europe 7 out of 11 markets are trading lower (CAC -0.28%, DAX -0.13%)
  • Today’s headline: U.S. Stock Futures Higher; S&P 500 Heads for Weekly Loss”
  • Economic calendar: Today: PPI, consumer sentiment and Richmond Federal Reserve Bank Pres. Jeffrey Lacker speaks at the University of Virginia in Charlottesville on "Challenges to Economic Growth," and after will answer questions from the audience and the media; earnings from JPMorgan and Wells Fargo.
  • VOLUME LOW: 1.58mil ESZ and 5k SPZ traded
  • SPREADS: 64 SPZ/H spreads traded
  • FAIR VALUE: S&P +4.50, NASDAQ +3.50


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Spain’s downgrade was no surprise, but it sent the Globex session to a new low of 1421.50. Hindsight shows there were ready buyers on the discount and no conviction on the part of the bears to apply continued pressure on the Eurozone news. Viva la ECB backstop! Now, if they could backstop the techs and the transports we might have a chance... The spoos rallied sharply preopen on the initial technical setup, as back and fill ran some weaker stops, but the equities only advanced modestly in the early morning RTH’s session. We have been reporting that this week’s erosion has only seen moderate volume as we head closer to the debates/election, earnings season and regurgitated headlines as the clock ticks away on the Eurozone and the fiscal cliff resolution - of sorts. In other words, the equities have not capitulated on the downside which would generally signal a turning point. Again, Rome was not built in a day, but we will get a peek into JPM and WFC, earnings tomorrow as the equities area trying to shake off the rotation that blew in last Friday. Also, the latest Rasmussen telephone survey reports; of Likely Ohio voters shows President Obama with 48% support to Mitt Romney’s 47%. Two percent (2%) prefer some other candidate, and three percent (3%) are undecided  http://bit.ly/Hs9UPV

Morning observations: Today's jobless claims showed a surprise 28k decline to 339k. Reports state, the number may have been influenced by the “seasonal adjustment” factor.
Conspiracy theorists are leaning away from the seasonal factor and more into the administration factor as word quickly spread…Roger (07:45:00): chatter a large state in US did not submit numbers for the jobless data, hence the lower than expected result... unable to confirm this at this stage. It was later reported: California purposely did not file recertification process for claims benefits...as a result, they did not file the increase in claims. Thus, making claims drop huge...this is from BLS official...Chatter followed adding about 25k, bringing the number back to 364k area. Now, even more are ready to stoke the fireplace, with a glass of wine nearby and the big screen tuned into tonights VP debate. The Middle East continues to weigh with todays reports of a Syrian pipeline that was blown up and a Russian plane carrying munitions was stopped.

Thursday started with 278k ESZ and 1.8k  SPZ traded on Globex, trading range 1437.00 – 1421.50/ Wednesday’s RTH’s, pit range was 1425.00 – 1437.30, settled at 1426.30 down 9.6 handles. Today’s RTH’s   gapped 10 handles higher to 1436.80 – 1436.50, traded an early high of 1437.20 down to 1435.00, 34.60, 34.20 by 9:08CT. at 9:45 the buy stops/programs above 1437.50 ran the spoos to a new high of 1439.00 by 9:45. However, mts2 (10:08:43): nazzy fade as news made the rounds the appeals court allowing Samsung to start selling Galaxy Nexus and the AAPL fell just a couple of notches... and then a few more down almost $10, or 2%. The tech sector does not have the swagger it once had and has bleeding even more than the DJT’s during the tablet surge / economic slowdown. (09:21:27): Syrian Security forces blow-up an oil pipeline, followed by reports of a Russian plane carrying weapons to Syria was stopped. Shortly after these headlines the bonds were trading new highs, up about half a point and crude was testing $93, up almost $1.50. Equities made a series of lower highs and lower lows on the pullback printing a new low of 1429.00 by 12:50. Our resident technical analysis team of, william_blount (12:39:33):c = .618 of a 1430.25 -- and a=c 1427.25, @princetontrader posted aka Mike_V (12:45:47): 1428 daily and 45 dayer EUBIE (12:56:13): 1429 PUNCH / try a legg long scalp. Well, you can probably guess a rally followed...on in fact the rally held 1432 area. We like to point out if a trader is patient and the technical analysis is good - it only takes a few of these trades a day to be a successful trader. I know, you are thinking it is much easier said than done...give a chat room a trial assuming they offer a free trial period - like http://www.mrtopstep.com/free/ and see how it can help. The closing imbalances showed 25 of the Dow 30 for sale, the broader market showed a small $220M to sell. The spoos traded a new low of 1428.20 on the cash close and then 1427.50 LOD before settling at 1428.40 on the 3:15 futures close, up 2.1 handles on the day.

MrTS video: http://www.mrtopstep.com/10-11-2012-gary-sandlund/

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CONTRIBUTORS’ CORNER

SPX CHARTS

Roger Volz, BGC Partners

SP1some big technical action in globex session saw double bottom post-Spain downgrade at 1421.50; first test of 1419.50 ledge=> Inside Range 1419.50 / 1441, Outside Range 1413.50 / 1453;1427 & 1434.50 double trading pivots today
ND1 negative consolidation Inside Range 2722 / 2753, Outside Range 2695 / 2775
Russell 2000 finds footing against 55-day moving average 820 day 3, top of neutral range is 835 on bounce=> Inside Range 820 / 835, Outside Range 808 / 842
VIX leaves lower high against 17.00 =>Inside Range 15.05 / 17.00,Outside Range 13.90 / 18.50
Gold neutral consolidation 1774.50 / 1756.50 => Outside Range 1743 / 1790
CL1 (Crude Oil) relief consolidation pattern above 90.90 following double bottom base; geopolitics still the back drop => Inside Range 90.90 /93.60, Outside Range 88.60 / 95.20
Ten Year Notes (TY1) tight consolidation chop 133'11 / 132'25 => Inside Range tightens 132'25 / 133'11, Outside range 132’16, 133’20
Inside Range
· Represents intra-day momentum gain/loss
· For example, if the upper bound of the Inside Range is1441, one can trade short against it/use this area as a stop and vice-versa
· If level is broken (sustained 5 minute move at a minimum, not quick spike up/down), it then typically becomes support/resistance for the remainder of the day
Outside Range
· Represents short-term trend changes
· If broken, the current trend may be in the process of reversing
· 2nd Outside Range (applied if needed) may be in play for a true trend reversal

SP 500 Chart and Indicator ….moving off oversold reading First leg of repair above 1428.00….second above 1431.50 opens the top of the range in the 60 min chart to 1437.00 and concentrated above 1440.50 where ST OB is initially targeted

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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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