futures day trading

  • A year's worth of futures market volatility in a week.

    the financial futures report

    China and crude oil are running the show in the financial futures markets.

    We aren't saying it is right, or even rational, but it is clearly China's economic data and volatility in crude oil that are in the driver's seat. Data out of China continues to disappoint despite some rather dramatic actions being taken by the country's central bank. We have to admit, we thought the futures markets (commodities and financials) would react more positively by moves made by the People's Bank of China. Instead, investors have taken their stimulus actions as reason to panic.

    Crude oil has seen the largest percentage move in over two decades. In fact, we've seen the asset class move more in 4 trading sessions than some commodity markets move in years. In any case, those that have traded crude oil futures know that volatility is par for the course. The problem with oil market volatility is that it bleeds into the financial futures markets. Although yesterday's crude oil rally likely postponed selling the the S&P futures, today's weakness in oil was a good reason for equity traders to hit the sell button.

  • Day Trading Futures: Risk Averse need not Apply

    Risk in Day Trading FuturesTraders are often lured to into the futures markets with a fascination for day trading. 

    The thought of buying and selling leveraged contracts without overnight risk is appealing to many, but underestimated by most.  As a retail commodity broker, I have had the pleasure, and the pain, of watching futures day traders attempt to profit through strategies ranging from scalping, to "position" intra-day trading, which spans several hours.  

    My observations of the futures markets have led me to the conclusion that day trading is perhaps one of the most difficult strategies to successfully employ.  However, for those that have the perseverance to dedicate themselves to the practice, contain the natural ability to eliminate emotions, and have enough experience under their belt, day trading in the futures market might be one of the most potentially lucrative forms of commodity market speculation. 

    The term day trading can be used to describe an unlimited number of futures trading strategies and approaches that involve buying and selling a commodity contract in the same trading session.   Many are system based, meaning that trading signals are executed according to specific technical analysis set ups; others incorporate a trader's instinct.  The approach that you take in the futures markets should be dependent on your personality and risk tolerances; not necessarily what has worked for somebody else.  Let's face it; there are only about twenty to thirty commonly used technical oscillators available in most trading platforms.  If there were absolute magic to any of them more people would have discovered the Holy Grail to futures trading.  Rather than expecting a technical indicator or a computer generated oscillator to do the work for you, I believe it to be more productive to properly educate yourself to the risks and the rewards of the commodity markets.  This includes the less technical, and thus less talked about, aspects of day trading.  

    Futures Day Trading is Mental

    I believe that becoming a successful day trader in the futures markets come down to instinct and the ability to control emotion.  If you have ever been involved in athletics, you have probably heard the adage that performance is 95% mental and only 5% physical.  I have found this to be true in trading as well, although instead of being physical trading is technical.  Quite simply, it isn't which technical analysis oscillators and indicators you use, it is how you use them.  Perhaps more importantly, how you deal with fear and greed that comes with risk exposure in the commodity markets as you are charting your futures trades.  Here are a few day trading tips that may aid in the mental preparation.


     

    Know the Futures Market Volatility and Accept the Consequences

    You often hear futures traders talk about their need for volatility.   It is a common perception among the trading community that higher volatility is equivalent to higher opportunity, and therefore profit potential.  Call me a "girl", but I happen to be a contrarian when it comes to this point of view.  Sure, if the markets are moving there is an increased chance for you to catch a large move and make history in your trading account.   However, there is another side to the story; let's not forget that if the market goes against your futures trade you could be put in an agonizing position.  Also, if you are a trader that insists on using stop loss orders, increased levels of futures market volatility translates into amplified odds of being stopped out prematurely. 

    I am not suggesting that you avoid the futures markets during times of explosive trade; however, you must fully understand the consequences and be willing to accept the inflated risk of trading accordingly. 

    In my opinion, the most convenient way of measuring commodity market volatility is through the use of Bollinger Bands.  The bands allow a trader to visualize the explosion and contraction of market volatility with similar movements in the bands.  Simply put, as the Bollinger bands get wider, the volatility and market risk is also on the rise.  Conversely, tighter Bollinger bands suggest relatively lower levels of volatility.  Please note that I didn't say lower levels of day trading risk; this was intentional. 

    emini S&P 500 volatility

    Figure 1: E-mini S&P 500 Futures - Traders can visualize futures market volatility through the use of Bollinger Bands.  It is a good idea to do so on a daily chart to get the big picture of market volatility. 

    Narrow bands indicate that futures market volatility is relatively low, but if the contraction is excessive enough it may signal an extraordinary spike in price is imminent.  Markets go through times of quiet trade, but such times are often followed by large and sudden increases in instability.  As you can imagine, being in the futures market at such times could be similar to winning the lottery or they could mean financial peril.  Before executing a futures day trade in a fast moving market, or one that is trading quietly, you must be aware of market tendencies to properly assess the risk of initiating a futures day trade.  Being conscious of all of the potential outcomes of your futures day trade may prevent panic liquidation or the infamous deer in the headlights failure to act. 

    Commodity Trader's Tool Box

    Technology has provided traders with an abundance of readily available information at their fingertips.   Accordingly, I strongly believe that traders should properly understand and utilize the resources available to them.  It doesn't make sense to pick a single indicator or oscillator and expect it to tell you the whole story; instead it should be viewed as a piece to the puzzle.  With that said, it can often be counterproductive to bog yourself down with too much information or guidance; this is often referred to as analysis paralysis. 

    In my opinion, it is a good idea to pick three or four tools that fit your needs and personality.  For example, if you are an aggressive trader with a high tolerance for risk you may opt for a quick oscillator such as the Fast Stochastics.  If you are a slower paced individual, the MACD may better suit your needs as it is a much slower moving indication of trend reversals. 

    It is important to note that after you have entered a trade you shouldn't change the oscillator that you are watching simply because the original isn't telling you what you want to hear, or in this case see.  This can be a tempting practice for traders that are caught in an adversely moving market and are in search of a reason to stay in the trade for fear of taking a loss. 


     

    Mental "Stop Loss"

    As you are probably aware, a stop order (AKA stop loss) is an order requesting to be filled at the market should the named price be hit. A trader long a futures contract may place and stop order below the futures price to mitigate the risk of an adverse price move.  Likewise a trader holding a short futures position may place a buy stop above the current market price as a risk management tool against a possible rally.  Once executed, the trader would be flat the market at or near the named price. 

    Most traders or trading mentors will tell you that you should always use stops; I am not most.  I argue that experienced and disciplined traders may be better off without the use of live stop orders and believe that mental stops may be a better alternative.  Supporting my assumption is the theory that  the dollar amount of the risk on any given trade is conceivably higher through the use of mental stops as opposed to actual working stop orders but the risk in the long rung may be less through the reduction of untimely exits.

    The concept of a mental stop is simply picking out a price level at which it is fair to say that your position may have been an incorrect speculation and manually exiting the market once your pre-determined price is hit.  Using mental stops as opposed to placing an actual stop loss order may prevent the natural ebb and flow of the market from stopping you out at what ultimately becomes premature. 

    I am sure that you have all fallen victim to the stop order that was triggered to exit your trade only moments before the market reversed course and left you behind.   Not only is this a frustrating place to be, but it often has an adverse impact on trading psychology going forward.  Unfortunately, it doesn't seem to be uncommon for inexperienced traders to behave somewhat recklessly in an attempt to get their money back from the very market that took it from them.  It is easy to give in to this mentality, but doing so will almost always end negatively. 

    The use of mental stops requires a considerable amount of discipline and may not be appropriate for all traders and strategies.  If you have a consistent problem controlling your emotions (we all fall victim to fear and greed at some point), stop orders are a must.  Without them you may be put into a position in which a single losing trade can wipe out weeks or months of hard work, or worse put you out of the trading business forever. 

    Even those that have an adequate ability to stay calm during unfavorable market moves may find losses pile up in violent market conditions.  For example, there are times in which it is very difficult to exit a position once the named price is hit without considerable financial suffering.  If you are not mentally capable of accepting this possibility, placing outright stop orders may be a better alternative for you despite its limitations.  Remember, if successful trading is largely determined by the mental capabilities of a trader it is imperative that you know yourself well enough to steer clear of situations that may lead you to behave emotionally as opposed to rationally.   

     

    emini nasdaq futures

    Figure 2: Mini Russell 2000 future - Stop loss orders are a great way to minimize futures market exposure, but I believe them to be a great source of frustration as well.  If you are disciplined it may be better to work without stop loss orders.


     

    Be Creative with Options on Futures

    It is no secret that more retail traders lose money than not in the realm of futures and option trading.  I have observed that day traders could face even more dismal odds of success.  However, don't let this deter you from participating in the commodity markets, instead use it as your incentive to be different.  If a majority of people are day trading futures contracts unproductively, perhaps you should be interested in trading strategies that are a bit out of the norm.  

    Buy Futures Options Instead of using Stop Loss Orders

    During the last few days of the life of a commodity option they time value, and thus the premium, of the instrument has often eroded to affordable levels.  If this is the case, it is sometimes possible to simply purchase a call or put option as an alternative to placing a stop loss order.  This strategy can also be viable in option markets that have more frequent expiration dates; particularly the weekly options written on the stock indices and grains. Keep in mind, however, that during times of excessive volatility even options with little time to expiration can remain too expensive to make them a viable substitute for stop loss orders.  In other words, using long call and put options instead of stop loss orders to limit risk of a futures trade is only situationally beneficial.    

    In essence, the purchased futures option creates a synthetic trade in which the day trade risk is limited to the amount paid for the option plus any difference in the entry price of the futures contract and the strike price of the option.   This is because the futures option will act as an insurance policy against the futures price moving above the strike price of the long call or below the strike price of a long put.  Beyond the strike price of the option, losses in the futures contract are offset with gains in the option at expiration. 

    The premise of such a day trading strategy is to reduce the possibility of being prematurely stopped out of what would eventually become a profitable trade.  However, it is important to realize that using long options as a replacement for stop loss orders should only be done if the risk is affordable.  If the options are relatively expensive to purchase, the risk of loss will be too high; depending on the situation it might render this approach impractical. Keep in mind, the foundation of buying commodity options instead of placing stop orders is to limit risk of loss, not to increase it.  To reiterate, paying more for a protective futures option than you originally intended to risk on the day trade should be a red flag, and lead you to explore other alternatives.


     

    Counter Trend Futures Trading

    Based on observations made during my years of being a futures broker, it seems as though most day trading futures strategies are very simple; identify an intraday trend and "ride" it until it ends.  It sounds easy enough; but is it?  I will be the first to admit that day trading is not my forte.  Nevertheless, through the scrutiny of the futures trading practices of others, compliments of my profession as a futures broker, I strongly believe that intra-day trend trading is much more difficult than one would imagine. 

    The problem with a futures market trend is it is only your "friend" until it ends.  By the time many trend trading methods provide confirmation to execute a futures trade, the market move has already been missed.   Psychologically, I have a difficult time buying a futures contract that has already risen considerably.  Likewise, selling a futures contract after it has already established a down-trend may simply be too late.  After all, the overall objective is to buy low and sell high.  Buying high and selling higher may work at times, but the common theory that commodity markets spend a majority of their time range-bound seems to work against intraday-trend trading in the long run. Only during times of exceptional market moves will it be possible for a futures day trader to ride a trend long enough to recoup what may have been lost on false signals and failed break-outs of the range. 

    Patient day traders might find that they fare better by looking to take advantage of extreme intraday futures price moves in hopes of a temporary recovery to a more sustainable level.  Doing so may provide less profit potential and if done correctly less trading opportunities but may pose better odds of success.

    Identify Extreme Futures Market Prices

    Futures market prices have a tendency to overshoot realistic valuations, only to eventually come back to an equilibrium price.  Emotion plays a big factor in this phenomenon but the running of stop loss orders are also a primary driving force.  Traders often place sell stop orders under known areas of support and buy stop orders above known areas of resistance.  As you can imagine, there are often several stop loss orders placed on futures contracts with identical or similar prices.  Once these orders are triggered, a swift move in prices in the direction of the stop orders takes place but often has a difficult time sustaining itself.  Understanding that stop running can artificially move a market quicker, and in a larger magnitude, than what would have transpired without the stop orders, a trader could attempt to take advantage of the subsequent rebalancing in price. 

    For example, an e-mini S&P trader may notice the market drop five handles in a very quick fashion with little fundamental news to drive the move.  This type of trade may be the result of a market that has simply triggered a batch of sell stops.  As the futures stop loss orders were filled, the buying didn't keep up with the selling and the futures price dropped accordingly.  However, if our assumption was correct and the move was based on sell stop execution, instead of fresh (legitimate) short selling, it is practical to believe that the futures market will rebound some, if not all, of the losses artificially sustained.  A futures day trader may look at this as an opportunity to buy the futures contract in an attempt to capitalize on a partial or full retracement of the drop. 

    wheat futures stop running1

    Figure 3 : Intraday Wheat Futures Chart - Extreme market moves followed by a retracement to an equilibrium level are common as stop loss orders are triggered creating large commodity price spikes.

    Naturally, before entering a futures day trade some technical confirmation must be made.  After all, the theory that a market drop was the result of sell stop running was an assumption not a fact.  Overbought and oversold technical indicators such as Slow Stochastics, Relative Strength Index (RSI), and W%R (Williams Percent R), might be helpful in determining whether or not prices were pushed to a level extreme enough to encourage buying. 

    Most of the available technical analysis oscillators were developed with the intention of identifying overbought and oversold conditions.  In their simplest forms, both overbought and oversold markets are the result of prices overshooting their equilibrium price.  

    Most technical analysis indicators represent extreme prices relatively well.  Thus, traders looking to buy on dips may find them helpful, but shouldn't expect them to be fool proof by any means.  Computer generated oscillators are great tools but they aren't a guarantee.  They can tell you what the market has done, but only you will be able to translate that into what the market may do next. 


     

    Conclusion

    Although day trading in the futures markets is a challenge, there is likely a reason why so many active futures traders of all skill levels and sizes are attracted to the practice.  There are obvious market opportunities in intra-day trading and with enough patience, practice and fortitude you may become one of those that have achieved profitable long-term trading results.   However, there is also rationale as to why we don't all quit our jobs and day trade commodities for a living.  Despite what may be relatively conservative risk on a per trade basis and a lack of overnight event risk, day traders face substantial risk in the long-run through the possibility of several small losses.  If you aren't willing to commit yourself to the labor of futures day trading, I suggest that you consider less labor intensive strategies. 

     

  • Dip buyers come to the rescue in the ES futures

    the financial futures report

    Drug Stocks and Homebuilders bring stock indices down

    Off the cuff comments made by the President-elect yesterday regarding US drug companies and a realization that higher trending interest rates (despite the recent recovery) is hurting the housing market, soured the equity market rally. As is usually the case, the market wasn't reacting to changes in fundamentals but rather expectations of changes in fundamentals. Accordingly, as we go on traders will either retract their initial reactions to these events or add to them. At the moment we are merely seeing back and fill trade as expectations are tempered. Today's trade wasn't a victory for the bears or a defeat of the bulls, it was simple consolidation.

    The economic docket for tomorrow is busy, but we doubt the market will be paying attention to the second-tier reports (PPI, Retail Sales, and Michigan Sentiment). The fireworks will likely be next week with the Presidential inauguration (who knows what types of market-moving comments could be made on both sides of the isle).

  • e-mini S&P 500 futures "should" test 2026ish technical support next

    the financial futures report

    Overnight volatility blamed on a surprise Australian interest rate cut, and weak data in China but...

    Most business news stations were attributing the overnight selling in U.S. stock index futures to weak economic data in China, and an unexpected rate hike by central bankers in Australia. However, the Asian markets traded mostly higher on the news because they've fallen into the "bad news is good news" trap (weak data increases the odds of more stimulus). Further, lower rates in Australia should be a positive for the global markets overall.

    We think a better explanation for the selling was the sharp move in the currency markets. The dollar index plunged well below 93.00, while the euro soared above $1.16. These are both major milestones, which were passed in volatile trade. Thus, we believe despite the fact that a weaker dollar will boost corporate earnings, the uncertainty of volatile currency trading prompted selling in U.S. and European equities.

    Ironically, the seasonal low for the dollar and peak for the euro is due this week...so perhaps the currency markets are in the process of reversing course in the short-run. In short, last night's "break-out" might turn into a trap.

  • E-mini S&P Futures selling could be limited

    the financial futures report

    The energy futures market is still in control

    It will be difficult for the stock market to get much of anything going on the upside, without stability in the energy market. Both crude oil and natural gas have fallen to levels of despair for energy producers. Further, economies in oil rich areas such as Houston, and parts of New Mexico and Colorado, as well as the Bakken, are slumping significantly.

    As is often the case with bubbles, sometimes they are only obvious after the fact. I should have known when my brother, a long-time member of the oil industry disclosed to me that oil field workers were paying New York style rents for run-down trailers near Farmington New Mexico (an oil rich area).

    With oil valued above $100 it was clear the there was some exuberance that needed to be worked out, but few would have predicted a $30 handle a year and a half later. Nevertheless, here we are...and ironically, investors are praying for higher energy prices to avoid debt defaults that could send stocks reeling. Luckily, the Euro seems to have put in a long-term bottom..if this is the case, oil should eventually follow suit.

    See our thoughts on this in the latest DeCarley Perspective: https://madmimi.com/s/ed5507

  • Fed minutes leaked, so did the ES futures contract

     the financial futures report

    Bloomberg leaked the Fed Minutes early, taking traders by surprise

     

    Bloomberg "accidently" leaked the minutes of the latest Federal Reserve meeting well over 10 minutes early. Although that might not sound like a big deal for most Americans, it translated into millions of dollars made and lost in the markets in the blink of an eye. Perhaps a timely release might not have experienced such a volatile market reaction.

    According to the minutes, most officials believe the stars are not quite aligned for the first rate hike in nearly a decade. The next FOMC meeting is still four weeks away, so there is plenty of room for things to change, but it seems a September rate hike is relatively unlikely. After all, since the minutes were taken, we've seen China's economy fall off the edge of a cliff. Accordingly, U.S. stock indices erased massive gains on the news, but eventually the e-mini S&P futures gave the rally back.

     

  • Futures market volatility is abundant with payroll data and earnings around the corner.

    the financial futures report

    Investors are on edge ahead of event risk

    Thus far the summer of 2016 has been highly volatile, and we don't see any signs of this changing anytime soon. From grains, to energies, to currencies and, of course, the financials, there have been fortunes made and lost in the markets. We suspect this trend will continue well into the fall months. Accordingly, it is generally a good idea to try to keep speculative bets on the small side.

    Risk-off assets such as Treasuries and gold are highly overextended despite the fact that equity market are hovering at relatively lofty levels. In our view, this offers a glimpse into the minds of investors; it is clear they are far from comfortable with the current environment. We can't blame them; we've yet to resolve the Brexit vote implications and we will soon be forced to endure the latest US employment report and, more important, it's potential impact on the Fed's interest rate policy. Soon after, the second quarter earnings season will roll out. With all of this in mind, it might be worth unloading some risk where possible.

  • Futures markets are recalibrating to China, but most of the pain is probably over

    the financial futures report

    Holiday futures markets didn't disappoint, but the Santa Claus rally did

    As is almost always the case, thinly traded holiday markets made for some exciting trades. Perhaps they were most exciting for those on the sidelines watching from afar. A smart colleague summed up his trading in December with the following statement, "The holiday markets giveth, then they taketh away...and then some."

    Volume on Monday was on the skimpy side as traders were still enjoying the holiday environment, but China essentially forced traders back to the markets. The Chinese government quietly implemented circuit breaker rules that forced the Chinese stock market to halt trading for two sessions in a row. In fact, today's session (which occurred last night for us) lasted only minutes before trade was halted.

    Failure of the Chinese government to allow the markets to properly react to market conditions triggered a global sell-off. At times like this it is important to remember that the Chinese stock market is in its infancy, and is being regulated by an entity that detests capitalism. Nevertheless, they seem to be learning that markets cannot be controlled. The circuit breakers will be bypassed on tonight's market open. In our opinion, this is a big step toward stabilization; after all, with circuit breakers in place buyers were not allowed to step in to cushion the fall.

  • Ignore the death cross in the e-mini S&P future?

    the financial futures report

    Renewed concern over interest rate hikes has stock index futures reeling...or does it?

    Truth be told, the most recent drop in the S&P is a mere 50 handles, or 2.4%. Even if you measure from the April 20th high, the market has corrected a paltry 4%. In short, because this correction has been long and drawn out it seems much worse than it really is. Further, if the realization that Fed action is coming sooner rather than later is only good for a 50 point sell-off, we've come a long way since the "taper tantrum". You might recall the fiasco of 2013 which occurred when the financial markets were informed that money printing stimulus was coming to a conclusion. In our opinion, if the market was going to fall apart on the thought of another rate hike, it would have done it already.

     

  • Is the e-mini S&P 500 futures market cracking?

    the financial futures report

    Trading volume continues to disappoint, and direction is lacking.

    Hopefully, most of you are still enjoying the summer vacation. We haven't seen this type of summer doldrum trade for quite a while. In fact, we've now gone 27 trading sessions without a 1% move in either direction. This hasn't happened since the summer of 2014 and is historically rare. It is hard to believe that earlier this year, the market was moving 1% up or down hourly and now it can't seem to do it in a trading session.

    The one thing I do know is this won't last. Investors and traders have grown complacent, and that is precisely the environment that breeds chaos. It isn't a matter of if, it is a matter of when volatility rears its ugly head.

    This isn't a notable news week, but the FOMC minutes released tomorrow afternoon could see a reaction.

  • No surprise from Yellen, Treasury futures turn the corner

    the financial futures report

    Trading volume was muted ahead of the Fed announcement

    Pending home sales were a bullish surprise this morning. According to stats, homes under contract for sale were up 1.4% in March. However, it was the crude oil inventory report that garnered the largest reaction...at least until traders remember it was an FOMC day, and stock prices reverted right back to where they started. The S&P fell markedly following a $1.00 drop in crude oil futures at the hands of the latest weekly inventory report, but both oil and the S&P recovered later in the day.

    Naturally, the story of the day was the Fed. The Fed didn't change interest rate policy, as was widely expected. They also basically copy and pasted their policy statement from the last meeting. In short, today's FOMC meeting was a non-event.

  • Parabolic ES Futures

    The Fed is as hawkish as they've been in years...

    A hotter than expected inflation reading and more confirmation from the Fed that they will be seeking at least three rate hikes this year set a negative tone for Treasuries. However, the same news was seen by stock trader as a sign of economic growth and prosperity. Accordingly, the seemingly never-ending stock market rally logged another session of buying. What can we say? This is a bull market...and nothing can derail it. In recent weeks we've seen chaos in Washington, riots in the streets of our cities, a North Korean missile headed for our shores, but we've yet to see investors interested in taking profits in the equity markets.

    If you ask me, the bulls are starting to get greedy (that said, we've obviously been wrong about the strength of this rally). According to our friends at Consensus, their bullish sentiment index has reached 76%. Generally speaking, this signifies an extreme that often results in a reversal. Likewise, The AAII Index suggests only 25% of those polled were bearish the market. The bus could be getting full...and we all know that that means.

     

  • Rebirth of the bull market or a head fake

    Stock Index Futures Trading Newsletter

    The futures markets have voted: Did Donald Trump awaken the bull market in stocks?

    It is no surprise the markets are fickle. Wall Street appeared to favor the stability of a Clinton regime but in the end they voted for growth policy following a Donald Trump victory. Whether or not the stock market's optimism will be mimicked in the economy is yet to be known, but for now we believe the euphoria could take us into year's end.

    Stocks often find a significant low in October, this year it seems that low might have been a few weeks late. Nevertheless, seasonal strength and one of the most convincing key reversals we've ever seen has us looking higher. That said, volatile markets can change quickly. The bulls will need to break above 2165, until this occurs the bears are still alive.

    Now that the election is over, the market "should" start focusing on the Fed.

     

  • Slow trade in the e-mini S&P Futures ahead of Fed minutes

    the financial futures report

    Light futures market volume, and surprisingly light volatility

     

    Another wave of stock selling in China failed to excite the U.S. equity market bears. In our opinion, the bears are simply busy doing other things (not trading). In regard to both volume and volatility, this is one of the most sluggish markets we've ever seen during our time as commodity brokers. It feels like Christmas in August! (If you've ever followed the markets over the holidays, you know what I'm talking about).

    We've been reminding our readers of the fact that China is a communist country with few rules. When things get bad, they simply fabricate stability through money printing, legal restrictions on stock selling, currency market manipulation, implementing constructions projects with no real purpose, etc. Last night the Chinese central bank reached into their bag of tricks, and pulled out one of the largest cash injections into their financial system in nearly 2 years to put the brakes on economic contraction. Despite the government's intention of stability, the reaction was panic.

  • The e-mini S&P 500 futures are on shaky ground

    Generally speaking, the stock index futures markets stumble into October

    The last week (or so) of September is notoriously weak for equities, and strong for Treasuries. We don't see any reason to buck the seasonal trend. After all, Friday's bloodbath on Wall Street is a sure fire sign that investors have not gotten over the mid-August stock market "crash".

    Although the Fed meeting is behind us, we still have to worry about the details of Janet Yellen's speech on Thursday at the University of Massachusetts-Amherst. Oddly enough, the financial markets sometimes react to non-FOMC speeches than they do the official Fed meetings. Be prepared for volatility.

  • The FOMC Minutes ARE a big deal for ES Futures Traders

    the financial futures report

    Historically FOMC minutes have been an afterthought, but in today's climate they are a big deal to futures traders

    The futures markets have been hanging on every word that trickles from the mouths of Federal Reserve members. Even off-handed comments made on their personal time have been moving through the grape vines.

    Today's FOMC minutes didn't offer any surprises. The Fed feels like the U.S. economy is moving in the right direction, which justifies a rate hike. But overseas market turmoil (namely China) has them pressing pause. The market seemed to like what they heard.

    In more bullish equity market news, the Chinese stock market opened for trade today after being closed for an entire week in observance of a national holiday (this is odd to us because it is essentially illegal in the U.S for the stock exchange to be closed more than 3 consecutive days). Once the bell rung, Asian traders bid prices higher to catch up with the global equity market rally that had taken place without them.

  • The VIX futures contract is waving a massive red flag

    the financial futures report

    In today's DeCarley Perspective (see here:https://madmimi.com/s/f78468) we noted the fact that the VIX is trading at historically depressed levels. Specifically, VIX futures near 15.00 and the cash market VIX near 11.00 is a relatively rare event. Even more interesting, is the fact that the VIX rarely stays at such depressed levels for long. This is because at such levels the market is discounting nearly all event risk. Traders are simply complacent, or as a former colleague might have said, "they are fat, dumb, and happy."

    On the flip side, if we are right about the VIX being near a low, the ES should be near a high.

  • Treasury and stock index futures traders awaiting the Fed and option expiration

    the financial futures report

    For Futures Traders, the Countdown to the Fed is on

    Six days from now we'll finally find out whether or not the Fed believes initiating a rate hike is a good idea. The investment community is polarized by the debate, and it seems the Fed might be too. We are still of the belief that they won't be looking to make any moves until the October or December meeting (most likely December), but either way the impact on the economy will be minimal.

    Even if they raise the overnight borrowing rate a full percentage point over the next year, funds will be historically cheap. With that said, we will likely see a knee jerk reaction to the first rate hike but that doesn't mean the actual value of financial assets have changed. More often than not, equity markets moved higher overall in the early stages of a rate hike campaign.

  • Triple witch and the Fed are around the corner, blow off high next week?

    The Fed and triple witching Friday are generally bullish events for the stock market

    Although the CME has mitigated some of the impact of the triple witch with their addition of weekly expiring options, the event still influences the quarterly expirations (March, June, September, and December). The most common course of action is a short squeeze going into expiration. In this particular instance, we are referring to Friday, June 17th. The squeeze higher often extends itself into the time the June contract goes off the board, which will be at 8:30 am Friday morning. Accordingly, those wishing to get bearish this market should look for opportunities late next week.

    Similarly, Fed meetings have generally enticed S&P buyers in the days before the FOMC's interest rate policy announcement. The two-day meeting begins on Tuesday, so we could see some buying early in the week.

  • Triple witch long squeeze in the e-mini S&P 500?

    the financial futures report

    This is what professionals call a WTH market (the "H" stands for heck).

     

    Markets undergoing vast changes in their technical outlook on a minute to minute basis are best described as WTH markets.  I have no doubt that investors who have been trained, and thus far rewarded, to "buy the dip" were putting money to work early this morning as the S&P 500 screamed higher, but I also have no doubt they are now remorseful buyers.

    The market looked equally as horrible on the close as it looked fantastic on the open. In such markets, typical market analysis techniques simply don't work and traders attempting to chase prices back and forth will wish they had never heard of momentum indicators.

    In the past, WTH markets have been followed by big moves so traders should approach the S&P with more caution than usual.

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