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As traders we evaluate the risks of buying and selling. Many times the decision is based on a level of support or resistance. It doesn't matter if you are a macro trader, a quant or a technician, a bank trader, a hedge fund trader, a professional trader or a retail trader. It also doesn't matter what the news was, the S&P 500 futures were going up.

There are few occupations in the world that compare to being a trader and there are few that let you make or lose so much money so fast. In 2010 our desk learned that when we lost almost $2mil when an errant option trade left a big debit. After years of being one of the top guys in the S&P doing program trading, I understood how to execute the orders and their effects, but I never foresaw that nearly 20 years later the market would be overrun with program and algorithmic trading. I know we talk about this quite often, but I wonder how many times one of your losing futures trades was part of some type of buy or sell program that pushed the futures down into the sell stops and later into the buy stops?

Futures traders flocked to the S&P because of how volatile it was. Back then the best word for describing how much buying and selling that was going on was crazy! Fighting to get the orders in the pit and out of the pit. Going up the old CME escalators you would get a knot in your gut -- it was like walking into a street fight. All you knew was things never stayed the same and when it was quiet you knew it would not stay that way for long. You had to stay close to the phones, but we all know that has changed. The phones still ring, but when they do it’s for a big ES order or an open outcry option trade. Yes, we are still banging it out, but it’s getting harder and harder.

2012 was known for a lot of things and not all of them were good for the markets. One of the biggest public letdowns and a stock people again could not wait to buy was Facebook [FB]. The stock opened at $38, made a high of $45 and went into a tailspin to the downside to $17.55 and recently was back up to $28. The public is still waiting for a clear picture of where the company is headed.

FB 1 Year Chart

Best Buy [BBY] also took it on the chin this year. Over the years there has been a consolidation with several electronic players being knocked out of the space. A few years ago electronics giant Circuit City went out of business and it looked like Best Buy was going to cash in, but as of Friday's close the stock is down nearly 50% on the year. Tight cash flow and a bad third quarter hit the stock hard. It made a high of $27.51 on March 23 and recently made its low for the year at $11.57 on Nov. 21. BBY is down -49.87% year to date.

BBY 1 Year Chart

Most recently and in the news the most has been Knight Capital Group [KGC]. Known as one of Wall Street’s top firms, the big proprietary trading firm that executes orders for itself and outside customers saw a trading glitch that sent shock waves throughout the industry and the world. The trading glitch cost the firm $440mil and ultimately was forced to put the firm on the chopping block. The stock plunged nearly 65% in 2012. Last week the company agreed to be bought out by Chicago giant Getco.

KCG 1 Year Chart

Everyone’s favorite bit the dust late in the year just before Apple [AAPL] rolled out its iPhone5. After seeing a run-up to new highs at $705 in September the stock went into a nosedive, falling under $500 in a matter of days. Fear over competition in Asia and the public's quick sentiment shift forced the stock lower. The funny thing is the bellwether is still up over 29% on the year.

AAPL 1 Year Chart

The big winners: While there were some big winners in 2012, like Bank of America [BAC] +105% and American International Group [AIG] +52%, the big winner we think held up the best was the S&P 500. After being up sharply in the first quarter and suffering a big selloff back to unchanged, the S&P has remained resilient in 2012. Even after last Thursday night’s 50-handle debacle, the ESH (mini S&P) still managed to close at 1426 last Friday. Yes, 2012 was filled with some very big ups and downs, but the S&P held up like a champ. The big question is what will happen in 2013. Just remember, how January goes, so goes the year. ...

S&P 500 Cash 1 Year Chart

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.

Our view: Pit Bull rule: If the expiration goes bad, so does the Monday after. We are going to keep it lite. The early Globex range is 1417.50 to 1424.50 with just over 50k contracts traded. We think this will be a good day to stay out of the markets.

  • It’s 7 a.m. and the ESH is trading 1422, down 4 handles; crude is down 24 cents at 88.42; and the euro is up 43 cents at 1.3230.
  • In Asia, 7 out of 11 markets closed higher (Shanghai Comp. +0.27%, Hang Seng +0.16%).
  • In Europe, 6 out of 11 markets are trading lower (CAC -0.31%, DAX -0.47%).
  • Today’s headline: “S&P 500 Futures Set for a Lower Open on Budget Concerns”
  • Economic calendar: No economic releases until Wednesday, Dec. 26.
  • Globex volume: 2mil ESH and 7.7k SPH traded
  • Fair value: S&P -1.50, NASDAQ -5.25

MrTopStep Closing Print Video: http://www.mrtopstep.com/videos/?id=36712  



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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.