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MrTopStep Best of 2012: THE GOOGLE DEBACLE


By Danny Riley

The October options expiration is here, and who could have guessed GOOG would be sitting at the $700 strike price? Yes, the S&P 500 futures broke a three-day winning streak, but that was not what traders in the S&P were talking about; they were talking about the Google debacle.

Our S&P futures and options desk on the CME has been around since 1985.  The desk was one of the largest execution desks in the index and has been part of every major stock market event for the last 28 years. In the ’80s and ’90s we would have to wait until after the close for bellwether IBM to report. Back then everyone would look at the Solomon Brothers desk because they were always buying or selling S&P futures right before the earnings release. I have to be honest, I could not remember what bellwether took IBM’s place, so I asked the Pit Bull, and he said that after IBM, GM took the top spot, “but today it’s Apple and Google.”

IBM monthly chart going back to 1985

  A lot has changed over the last 25 years. IBM is still a respected tech company, but it does not carry the weight that it used to, and we all know what has happened to GM.  Today’s big-name bellwethers are Apple and Google. Almost everything in the stock world revolves around the two names. Both companies are run by some of the brightest people in America and both have a reputation of providing quality technology products. Both companies are the leaders in their respective fields. And most of all, both companies pride themselves on a high level of professionalism. That is why it is so hard to understand how Google earnings ended up getting released early. The S&P futures were pretty much down 4 to 6 handles all day and the ESZ was actually upticking when out of nowhere GOOG was down $62, then down $65 and then down $69 to $70 in a few seconds. Google reported its earning more than 3 hours early due to a glitch. The bigger problem was the results, and the stock plunged 8.70%. Like we said, we have seen a lot of things but we never saw IBM or GM release on a mistake like that. ...  

GOOG 15m chart of crash


At 6:15 am Morgan Stanley reported better than expected earnings results.  At 7:30 U.S. jobless claims rose, exceeding forecast. On the 8:30 open the futures were under pressure and at 9:00 a report from the Philadelphia Fed showed manufacturing expanding for the first time in 6 months. At 9:55 Goldman Sachs released internal probe of salesman Greg Smith, who is accused of ripping off his customers, and at 11:33 Google's earnings mistakenly released and the stock was halted for two and a half hours. After the close Microsoft reported earnings fell short and AMD came out with a disappointing sales forecast and said it is cutting 15% of its staff.


  • Exp. Friday         up 16 / down 12 of the last 28 occasions

MrTopStep Closing Print Video: http://www.mrtopstep.com/closing-print-10182012/

Our view:
Today is the 25-year anniversary of the worst one-day stock crash in history, the ’87 crash. The crash came about because of threats of higher taxes and a slowing economy. Brian Shepard and I were the last people to leave the CME trading floor at 10:30 p.m. History does have a way of repeating itself, but we don't see that happening right now. With the Fed buying $40bil in mortgages a month, it’s highly unlikely at this moment.  Our view for today is that the S&P has gone a long way in a short period of time and with a lack of any economic news or earnings we could be in for a long day.We lean to playing both sides, similar to yesterday’s trade, where the S&P took out stops on both side of the market. As always, keep an eye on the 10-handle rule and please use stops.

  • It’s 6:00 a.m. and the ESZ is down 1.5 handles at 1450.00, crude is up 4 cents at 92.14 and the EC is trading 1.3056, down 14 ticks.
  • In Asia 7 out of 11 markets closed lower (Shanghai Comp -0.16%, Hang Seng +0.15%).
  • In Europe 11 out of 12 markets are trading lower (CAC -0.57%, DAX-0.66%).
  • Today’s headline: “European Stocks Decline As EU Leaders Discuss Bank Union Plans”
  • Economic calendar: Existing home sales; earnings from GE, McDonald's, Schlumberger, Honeywell, Edwards Lifesciences.
  • VOLUME LOW: 1.8mil ESZ and 11.2k SPZ traded
  • SPREADS: 60 SPZ/H spreads traded
  • FAIR VALUE: S&P -5.00, NASDAQ -13.00
Brian Shepard Market Recap

Brian's Thursday recap: Surprise! Today’s economic data was supportive and the mixed bag on this morning's earnings front was mildly supportive - due to lowered expectations of late. China’s overnight data was lukewarm and not enough to extend the impressive gains on the week as their GDP data was soft, showing another quarter of slowing growth, but industrial production and retail sales were decent. The Eurozone continues to march to the tune of several drummers, but with the backstop in place it appears there is less focus on the region lately as the dueling headlines have less effect on the markets. ECB Must Define Aid Conditions For Spain, Spain Official Tells WSJ = no bailout request yet... In the US, the early earnings reports were also mildly supportive, but the jobless claims disappointed by checking in much higher than expectations, 388k vs exp. of 365k. Tick tock.....

Morning observations:  I am telling ya - It was hard to miss this one... 11:40 PM Google's (GOOG -8.4%) Q3 results are out early, and they missed estimates. EPS of $9.03 missed by $1.62, and revenue of $11.33B (+51% Y/Y, boosted by Motorola acquisition) missed by $530M. Shares were diving, down 8.5% and halted minutes later. As far as circuit breakers go on the Floor of the NYSE, all DJIA and S&P 500 stocks trigger a Volatility Trading Pause (VTP) on a 10% move in any 5 minute period. There has to be at least three trades above this threshold for the VTP to be triggered (a mandatory 300 second halt). All other stocks have a 30% VTP (except stocks under $1 which have a 50% VTP. *GOOGLE SAYS STOCK HALTED AS IT FINALIZES 8K EARNINGS DOCUMENT *GOOGLE SAYS 8K FILED WITHOUT AUTHORIZATION *GOOGLE SAYS RR DONNELLEY FILED DRAFT 8K EARNINGS W/O AUTHORITY.
Here is the 8K document  http://xml.10kwizard.com/filing_raw.php?repo=tenk&ipage=8515399&ds=2

Anyone thinking about the expiration - posted by Jim M (12:33:22): based on Mondays close >SPY> Puts out-number calls 2.2-to-1.0 – about the same as last month. Call OI is highest between 144 & 152. Put OI is highest between 130 & 145. There’s some overlap at 144/145, and otherwise the call and put OI is split pretty well. A close right there (near unch) would cause the most number of total calls and puts to expire worthless. Today’s close was at 144.08, which right at the lower end of the small overlap range. Hence flat trading the rest of the week would do the trick; a slight move up would be fine too...

Even more from Jim - DIA Puts out-number calls 1.2-to-1.0 – less bearish than last month. Call OI is highest between 134 & 139. Put OI is at 126 & 128 and then is eerily steady between 129 & 137. There’s overlap between 134 & 137. Given that the call and put OI is nearly equal and the call OI is much greater within the overlap area than the put OI, a close in the lower half of the range would cause the most pain. Today’s close was at 134.02, right at the lower end of the range. If DIA closed here on Friday, some of those put buyers would make money at the expense of nearly all the call buyers losing. Flat trading would cause lots of pain, but a slight move up would cause a little more pain.

U.S. Companies Trim Medium-Term Hiring Plans. Business Council Members Cut Growth Forecasts, Inflation Expectations. Business Council CEO Confidence Index 47.8 in Oct. vs 62.5 in May. The Business Council represents more than 100 U.S. CEOs

MTS chart: Only +75 HANDLES since FRI http://www.mrtopstep.com/mrtopstep-charts-major-inflection-stocks-to-bonds-spy-tlt-spz-1420/

Thursday started with 230k ESZ and 1.5k SPZ traded on Globex, trading range 1453.60 – 1458.10 / Wednesday’s RTH’s, pit session range was 1457.70 – 1448.50, settled at 1457.10 up 7.9 handles.
Today’s RTH’s gapped 4.5 handles lower to 1453.00- 1452.50 traded a low of 1450.80 and slowly stepped up to 1459.50 by 11:15CT. EUBIE (11:12:41): looks like we are in DISTRIBUTION PHASE of MKT / 1459 / 4 days after the CAPITULATION SELL 1420 / TLT $124.75 EUBIE (12:29:40): I'll bet a nut that this 1459 area is IT ON THIS LEGG TODAY which was posted minutes before the surprise of the day. mts2 (11:36:24): *GOOGLE 3Q REV. EX TAC $11.33B, EST. $11.83B :GOOG US and a short sale restriction on goog went into effect and was halted by 11:51. The spoos went to trade new lows of 1447.70, briefly breaching yesterday’s low and clawing back up to retest the opening range. Google did not resume trading until 2:20CT so for the most part all was quiet through the afternoon as the spoos hovered around the opening range. The closing imbalance showed the broader market with a small $100M to the buy side. The cash close traded 1453 area before settling at 1451.50 down 5.6 handles on the day.  




Roger Volz, BGC Charts

SP 500 Futures 60 min Chart and Indicator ….fake out breakout with nudge above yesterday’s 60 min OB readings 1457.00 following GOOG stunner. Testing first ST reversal line at 1452.50 with risk following to 1445-1444.50.

ST OB > 1565.00 from 1457.00 /// ST OS < 1434.50

· Additional intraday readings

VST 5 min ……VST 5 min OB issued above 1458.50 just before GOOG debacle…..VST 5 min OB > 1459.50 /// VST 5 min OS < 1448.50

VST 15 min … VST 15 min OB > 1462.00 /// VST OS 1445.75

Daily Chart Focus Levels….bears have their backs up against the wall again as 3 day surge comes within a whisper of the recent double top; the next group of concentrated resistances at 1460.50 / 1461.50 / 1464.00……momentum slips below 1453.35 then opens an air pocket to 1444.40-1442.50

SP1 Daily Resists ….….….….1460.00-1461.50-1464.00 …… 1467.00 ……….. 1475.00 ….. 1478.00 ………… 1492.00

SP1 Daily Supports….1452.50........1444.50-1442.25…….1438.50……1427.50-1426.00…...1419.50 -1416.00….. 1413.50 …. 1405.25….1401.00/ 1398…..1390.00…….1382.00

SP1 Daily technical extremes OB >1478.00 (1485.50 for raise) /// SP1 Daily OS < 1348.50 from 1343.00

Weekly Chart Technical Stance and Focus Levels….a lower high is left in the wake of a retest of the previous double top falls short of testing the next ledge of resistance in our intermediate term model at 1469.50-1470.50. Our momentum loss line is 1441.00 where pinching 3/5/8 wk moving averages gather. Key support remains at the rising 13-wk SMA at the 13-wk SMA at 1424.35……...inside range back to 1469.50 / 1441.00...…outside range 1486.00 / 1396.50

Monthly Chart Technical Stance and Focus Levels …..a lower high so far with Oct versus Aug 1467.50 – 1466.00 thus avoiding a lift into strong positive > 1481; our last note had us “on guard for a Oct lower high 1467.50 -1457.50 (current)” ….inside range 1481 / 1405 ….outside range 1533/ 1357 (1273)

SP 500 Futures 60 min Chart…….targeting ST OB > 1452.50-1454.00; last OS reading occurred 10/10 on test of 1421.50

Roger Volz S&P 500 Futures 60 min chart






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