For today: If the jobs number comes in higher than expected and we see oversized Globex volumes of 400K+ pre-open and the ESM is sharply higher, we want to ...
After the S&P got spanked and ran all the sell stops down to the 1597 level it became decision time for the S&P futures. Continue down or short cover? After the close I sat in the MrTopStep office with Vikram, our COO, and tried to explain what I was feeling and why the S&P did what it did yesterday.
There has been a lot of pent-up trading over the last few days. If you you have not noticed, there seems to be an exorbitant amount of intraday false starts. After a little selloff after the open, the ESM made several attempts on the up and the downside. All year we have said in order for the S&P to go up it has to go down first.
Over the last several days that price action has flipped. Now the ESM has to rally to go back down. After an early battle the ESM finally broke down through Wednesday’s lows at 1606.50 and yesterday’s Globex low. After giving way to the downside and taking out the downside sell stops from 1601 down to 1597 (we said to look for sell stops 1601 down to 1596 in the Opening Print) it was mission accomplished. After the new low the ESM popped back above the big figure at 1600 and then did the same thing that it did on the downside -- started looking for buy stops on the upside.
Smart money lightening up
Based on the sell imbalances and the mutual fund outflows, we know people are taking some profits. As we go into this morning’s job numbers, we also know many of the big hedge funds and bank trading desks flattened out going into today. Several funds that sold over the last few days bought back some of their S&P and NASDAQ short positions yesterday. Our desk sees this type of flow, so we know some of the funds lightened up positions to reduce exposure.
Increased volume in the S&P
Brokers and traders are always complaining about the low volumes in the futures and options markets. Our desk, like many desks in the S&P and S&P options, saw a big let-up in customer execution business, or what they call give-up business, when the S&P ground higher and higher every day.
That has changed considerably over the last two or three weeks, and so has the CME’s total exchange volume. On Wednesday, May 29, the CME Group experienced record volumes. In the CME Group derivative exchanges, there were 26.9 million contracts traded, of which 19.4 million were in the rates complex. That single-day volume record of 26.9 million surpassed the previous record of 25.7 million contracts on August 9, 2011.
CME Group also confirmed records in daily trading volume for the following:
- Globex electronic volume reached 23,537,737, surpassing the previous record of 22,887,758 set on August 9, 2011
- Interest rate futures and options combined reached 19,417,635, surpassing the previous record of 17,164,758 set on February 27, 2007
- Treasury futures and options combined reached 13,189,142, surpassing the previous record of 11,219,180 set on May 28, 2013
- 10-Year U.S. Treasury Note futures and options combined reached 5,892,461, surpassing the previous record of 4,747,148 on February 27, 2007
- 5-Year U.S. Treasury Note futures and options combined reached 3,645,864, surpassing the previous record of 2,994,162 set on May 28, 2013
- Ultra U.S. Treasury Bond futures and options combined reached 679,752, surpassing the previous record of 461,501 contracts set on February 26, 2013
- Deliverable Swap futures reached 15,874 contracts, surpassing the previous record of 13,861 set on February 22, 2013.
We think today’s jobs number is going to be an upside surprise. Nonfarm payroll last month was 165,000 with an unemployment rate of 7.5%. Average hourly earning came in at 0.2% and private payroll came in at 176, 000. Today we expect the latter to be in line with last month's numbers but we expect a higher non-farm payroll of 180,000 to 200,000. The consensus for non-farm is 147,000 to 210,000. If that is the case then we could be looking at one of MrTopStep’s favorite rules: Counter Trend Friday. To better understand how this trading rule would apply, please open the link to the MrTopStep Trading Rules 101: http://mr-topstep.com/images/pdf/MTS-Trading-Rules-101.pdf
See you in the MrTopStep IM-Pro chat room (14-day free trial) at 7:20 CT: http://www.mrtopstep.com/free/.
Our view: The dollar and global shares had a rough night. Asia closed lower and Europe is down across the board, but the S&P is only down 2.5 handles at 5:00 am. Everything was moving yesterday, JPY (Japanese yen) up over 300 at one point, the pound (GBP) up over 200, gold higher, bonds higher, and a big late-day rally in the S&Ps. Things have really picked up on the Merc floor. Here is how we see this: The ESM rallied 27 handles off yesterday’s 1597 low. If the number comes in higher than expected and we see oversized Globex volumes of 400K+ pre-open and the ESM is sharply higher, we want to sell the open or the first 2-4 handle rally above. This is a day trade, not a long-term position. We will figure out the rest on the MrTopStep IM Pro later.
- It’s 8 a.m. and the ES is trading 1622, down 3 ticks; crude is up 47 cents at 95.23; and the euro is up 9 pips at 1.3256.
- In Asia, 10 of 11 markets closed lower (Shanghai Comp. -1.39%, Hang Seng -1.21%, Nikkei -0.21%)
- In Europe, 9 of 12 markets are trading lower (DAX -0.16%, FTSE -0.10%).
- Today’s headline: “Bonds Up, S&P Futures Lower Before Jobs Data”
- Total volume: 2.79mil ESM and 18k SPM
- Economic calendar: Employment situation and consumer credit
- Fair value: S&P +2.44, NASDAQ 0.85
- MrTopStep Closing Print Video: https://mr-topstep.com/index.php/multimedia/video/latest/closing-print-06-06-2013
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.