Years ago when I walked into the S&P pit it didn’t matter what the foreign markets were doing or what the economic reports said. There were thousand of orders being bought and sold, and if you could get into the order flow it was not that hard to pull $10 or $20 grand out of the pit, go on break and come back and do it again.
There were all sorts of traders; some locals were too short so they bought specially made shoes that would make them 4 or 5 inches taller, while other guys were tall as basketball players and others as big as a football player. Some locals were quiet while others were loud guys who muscled their way around the pit.
Back then most didn’t care what the foreign markets were doing, because we were in the S&P 500 futures (SPU14.CME) pit, the most vicious and most profitable futures pit in the world. A place where millions were made and lost in seconds.
While the S&P is still the world’s leading stock market index, globalization of the markets is hard to ignore. When one market is pulling down the others get affected. New headlines are now connected to algorithmic programs. In the old days, pre-algorithmic trading, one of the best ways for a pit trader to make money was to beat the public in reacting to the news.
One example that sticks out is the IBM earnings. I remember how Salomon Brothers always seemed to have the number before it was released. Now in order to catch a “flyer” like that you would have to buy or sell before the numbers are released, because there is no way you can beat the news algos to the punch.
The day of the “local” jumping in front of a number are long gone. Today a trader takes on too much risk by jumping in front of big earnings releases like GOOG or AAPL. It is the fastest way to make or lose but it’s also the riskiest way to go.
The DAX is the center
While we center our research on the S&P (ESU14.CME), we also follow the German DAX. After leading the European bourses lower the last few weeks, the DAX rallied 400 points and then sold off 300 on the news that Ukraine had hit a Russian military convoy. Germany is one of Russia’s largest European trading partners and is a bellwether for the European markets and news.
If there was a center of the indices in Europe it would have to be the DAX. There are a lot of similarities between the S&P 500 futures and the DAX, but there is also a lot of sell Europe / buy U.S. stock trading going on. Investors are moving away from the DAX because of the risk of sanctions.
Overnight, the Asian markets closed mostly higher, and 11 out of 12 European markets are trading higher (DAX +1.46%). The week ahead has a very small economic calendar: 11 economic releases, 11 T-bill or T-bond auctions or announcments and the Fed minutes. Today’s economic and earnings calendar starts out the week with the Housing Market Index and earnings from Urban Outfitters (NASDAQ: URBN) and Perfect World Co. (NASDAQ: PWRD).
Mutual Fund Monday up 4 of the last 5
Our view: The late pop on Friday in the ESU14 was the Russians denying that the Ukraine blew up their Russian military convoy. There is so much disinformation coming out of Putin’s Russia right now its hard to figure out what exactly they are trying to do. We know they are trying to destabilize the border but do they have bigger plans? I think they do.
The S&P cash study shows today, the Monday after the expiration, up 13 / down 17 of the last 30 occasions. At 8:00 Sunday night the S&P was up 7 handles. Was Friday’s selloff another “bear trap”?
Headlines like Friday’s tend to push the public to sell at low prices. We warned our followers and members not to be long into the highs of the day. If you were long, that Russian denial probably helped you outsmart the algos, but what if it had come out later in the evening?
And if you were caught selling at low prices you probably paid the price during that Late Friday Rip. Today we lean to selling the early rallies and buying weakness. European stocks rebounded strongly overnight and bonds fell as traders breathed easier over the crisis in Ukraine, which has practically disappeared from the headlines in the U.S.
Video: S&P Russian Cargo Truck Shabang!
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 7 of 11 markets closed higher: Shanghai Comp. +0.57%, Hang Seng unch’d, Nikkei +0.03%.
- In Europe 11 of 12 markets are trading higher: DAX +1.46%, FTSE +0.73%, MICEX +0.35%
- Fair value: S&P -3.33, NASDAQ -3.26 , Dow -32.90
- Total volume: 1.8k ESU and 4.9K SPU traded
- Economic and earnings calendar: Housing Market Index and earnings from Urban Outfitters (URBN) and Perfect World Co. (PWRD).
- E-mini S&P 5001975.75-1.50 - -0.08%
- Crude104.30-0.12 - -0.11%
- Shanghai Composite0.00N/A - N/A
- Hang Seng25159.76+36.811 - +0.15%
- Nikkei 22515454.45+4.66 - +0.03%
- DAX9301.85-32.431 - -0.35%
- FTSE 1006754.91-24.40 - -0.36%