We are seeing history being made here folks...

One of the fundamental concepts of market characteristics is they generally don't go straight up or straight down, yet that is exactly what we are seeing in the e-mini S&P futures. We are seeing the stock indices achieving record-breaking streaks in regard to new highs and muted volatility levels. For example, yesterday the Dow posted the 10th positive consecutive close for the first time in four years and there have been only four occasions in history in which we've seen more than 10 positive closes in a row. The Dow also closed at a new high for the 10th consecutive day for the first time since January of 1987. Similarly, the annualized volatility thus far in 2017 is 5.9%, the tamest start to a year since 1966. Just as concerning, the S&P has gone 92 days without a 1% decline, this is the longest streak since 2006 and the S&P hasn't had a 1% intraday move since December 15th, this is the longest such streak in history!

The point is, the one directional trade and lack of volatility we are seeing in the ES is rare. And it is also dangerous. You might have noted a few of the years referenced above being on, or just before, significant market declines. We happen to believe this bull has quite a bit of room to run in the long-run, so we aren't looking for an 1987-style crash but it is worth noting that "never-ending" rallies can be unstable once they finally correct. Caution is warranted.

The Financial Futures Report is a commodity trading newsletter distributed to DeCarley Trading futures brokerage clients, free of charge.

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Are we finally going to see the correlation between stocks and oil soften?

In overnight trade, it was the same 'ol, same 'ol. Crude and stock index futures moved together in lockstep; we saw the same action in early day session trade. Yet, after the Fed meeting, each market seems to be willing to have it's own reaction to the Fed news. Crude oil squeezed, and held, well into positive territory while the stock market remained under moderate pressure. This probably isn't an immediate game changer, but it is a step in the right direction and is worth noting. Both assets trading as one isn't healthy for the financial markets, or the commodity markets. In fact, it should eventually be bullish for stocks...after all, they've taken a hit at the hands of the crude oil futures slide.

The big news of the day was the Fed meeting. The meeting itself was considered to be "dead" going in. This means that few (nobody) believed there was a chance for a policy change, but traders were hoping for hints regarding the pace of upcoming interest rate hikes. In a nutshell, they were very careful to leave a rate hike in March as a possibility, while simultaneously noting softening conditions that probably won't warrant another immediate tightening of credit. In the end, the news was relatively neutral to slightly bearish for stocks, but seems to have been enough to throw cold water on market volatility, which is a blessing in itself.

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).

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.

The euro will need to roll over for the ES to attract sellers.

The euro currency has been on an impressive run (much to our dismay) but few have acknowledged the impact the currency markets are having on stocks and commodities. In the last 180 trading sessions, the euro and the e-mini S&P have settled in the same direction roughly 70% of the time. Thus, strength in the euro has helped hold the stock market afloat.

Similarly, commodities such as crude oil and copper have benefited from the change in currency valuation but might not fare so well if the euro finally succumbs to gravity. In short, if the dollar can find a way to reverse course (AKA the euro weaken) we should see bellwether commodities turn south and they could easily bring the S&P 500 with them. Keep an eye on the currency market, it could be ready to turn the corner!

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.

Heavy commodities and light economic data weigh on stocks

Two consecutive days of sharp crude oil declines reminded traders of the chaos energy markets inflict on the financial markets. As a result, the e-mini S&P suffered moderate losses in overnight trade. However, it was weak economic data that kept prices under pressure throughout the session.

February retail sales came in at a a negative .1% for both the headline number and ex-auto. Although this was an improvement from January, it is hardly reason to go out and buy stocks. Similarly, the Empire Manufacturing data improved markedly from last month to a positive 0.6, but simply posting a slightly positive number isn't enough to get investors excited. Today's PPI data, reported a decrease in prices at the producer level of .2%. Thus, last month's hint at inflation was dissolved.

Tomorrow we'll hear about the latest data on consumer prices and housing starts, but I'm not sure it will matter to the market. All eyes are on the FOMC interest rate decision, which will be released at 2:00 Eastern.

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.

Calculating Profit and Loss in Interest Rate Futures

As you have likely discovered, the term commodity can be used to describe a wide array of assets. The formal definition of a commodity is a physical substance or asset that is “interchangeable” in trade. From a more general standpoint, a commodity is any product that trades on a futures exchange. Along with grains such as corn and wheat, commodities also come in the form of financial assets such as interest rate products and currencies. Just as you wouldn’t prefer one bar of gold over another, you likely wouldn’t have a preference between one T-bill over another. The Chicago Board of Trade (CBOT) division of the CME Group futures exchange has recognized this; therefore the CBOT exchange offers standardized contracts to represent each of the government issued fixed income securities known as Treasuries. Similarly, the Chicago Mercantile Exchange division of the CME Group, offers futures trading in a short term interest rate product known as a Eurodollar.

There are several widely traded contracts in the realm of interest rate futures trading. Each of these futures contracts carry slightly differing market characteristics, and in some cases contract sizes, point values, etc. For those unfamiliar with the futures markets, these discrepancies can be overwhelming. However, I hope to deliver the pertinent information clearly in order to make your journey into financial futures trading as pleasant as possible.

Before we cover the basic specifications of each contract, it is important to be aware of a few facts regarding Treasury bond valuation. First, longer maturities will react quicker and more violently to changes in interest rates than shorter maturities. Additionally, the value of a bond (the price in which it is trading) is inversely correlated with interest rates or yields. Accordingly, if interest rates go up bond price will drop and vice versa. Keep these points in mind as you review the details of each contract; it will help you to determine which avenue best suits your risk tolerance and personality.

Interest Rate Futures

Treasury Futures

Several years ago the 30-year Treasury bond was the primary interest rate product traded on the Chicago Board of Trade (CBOT). During its prime, it was considered the only Treasury futures contract for experienced commodity traders to involve themselves with. However, the Federal Reserve’s failure to issue new 30-Year bond contracts on a regular basis has worked against the popularity of the contract. In the meantime, shorter maturities such as the 10-Year note benefited in terms of volume and open interest.

Similar to the other financial futures contracts, all interest rate products are on a quarterly cycle. This means that there are four differing expiration months based on a calendar year. Thos months are; March, June, September and December.

30-Year T-Bond Futures

Symbol: ZB

The 30-year bond is often referred to as the long bond due to its lengthy maturity and its spot on the infamous yield curve. You might also know it simply as “the bond” as other Treasury issues are known as Notes or Bills (to be discussed later).

The face value of a T-Bond at maturity is $100,000; therefore the contract size of one futures contract with the 30-year Treasury bond as an underlier is also $100,000. Knowing this, it is easy to see that a contract can be looked at as 1,000 points, or trading handles, worth $1,000 a piece. What is unlikely to be obvious is that each full point or handle can then be looked at as a fraction. In trading, the term handle is used to describe the stem of a quote. This usage began in reference to currency futures to describe a penny move. For example, if the Euro rallies from 131.00 to 132.00, some may say that it has moved a handle. In the case of the 30-year Treasury futures, a rally from 156’0 to 157’0 is equivalent to a price increase of one handle.

The discussion of the relationship between Treasury futures prices and interest rates is to extensive to be included here, but to clarify pricing here is a general explanation of the relationship between the current Treasury price relative to it’s par value. If a futures contract is trading in excess of its par value of 100’0, interest rates have gone down since the issuance of the underlying Treasury securities. If the futures contract is trading below par, interest rates have gone up.

The long bond trades in fractions of a full point; specifically, ticks equivalent to 1/32 of a full point or $31.25 figured by dividing $1,000 by 32. Treasury bond futures are quoted in handles, and fractions of a handle. Further, by the number of full points (worth $1,000) and an incremental fraction of such. Thus a typical bond quote may be 152-24. This is read as 152 handles and 24/32nds. At this quote, the futures contract has a value of $152,750. This is calculated by multiplying 152 by $1000 and 24 by the tick value of $31.25.

If you are comfortable with the idea of adding and subtracting fractions you will be able to easily calculate profit, loss and risk in Treasury futures. For those that are “fractionally” challenged, you may want to trade Eurodollars which are valued in decimals and will be discussed subsequently. However, I am confident that everyone will quickly become proficient bond futures calculations after looking at the examples below.

Reading the contract size and point value likely isn’t going to help you to remember or even understand bond futures pricing but looking at a few examples should add some clarity to the details. If a commodity trader goes long a September bond futures contract at 155’22 and is later able to sell the at 156’24 would be profitable by 1’02 or 1 2/32. In dollar terms this is equivalent to $1,062.50 ((1 x $1,000) + (2 x $31.25)).

The multiplication is relatively standard but people tend to be unjustifiably intimidated by fractions. If you recall the concept of borrowing, you will be fine. In the example above, it wasn’t necessary to borrow. You could have simply subtracted the numerator (top number in fraction) of the buy price from the numerator of the sell price and multiplied the result by $31.25. Likewise, you would have subtracted the handle of the buy price from the handle of the sell price and multiplied the result by $1,000.

24/32 – 22/32 = 2/32, 2 x $31.25 = $62.50

156 – 155 = 1 x $1,000 = $1,000

Total Gain = $1,000 + $62.50 = $1,062.50 minus commissions and fees

The math isn’t always this convenient. There will be times in which you will need to borrow from the handle to bring the fraction to a level in which you can properly figure the profit or loss. For example, a trader that sells a September bond futures contract at 158’12 and buys the contract back at 156’27 may have a difficult time calculating her trading profit. In this case it is easy to see that the trade was profitable. We know this because the handle at the time of the sell was 118 and the buy was 116 but unless you have been doing this for a while it will take a little work to derive the exact figure.

The denominator of the sell price, 12, is much smaller than the denominator of the buy price, 27. Therefore we know that we must borrow from the handle to properly net the fractions. In this example, we could reduce the selling price handle to 157 and increase the fraction by 32/32nds. Thus, the new selling price is 157’44. This is a number that can be easily worked with.

44/32 – 27/32 = 17/32, 17 x $31.25 = $531.25

157 – 156 = 1 x $1,000 = $1,000

Total Profit = $1,531.25 minus commissions and fees

The purpose of these examples is to give you an idea of how T-Bond futures traders can calculate their trading results. Obviously, not all bond futures trades or traders will make money.

10-Year Note Futures

Symbol: ZN

The 10-year note futures, or simply “the note”, has many similarities to the 30-year bond futures contract. The contract size and the point value are all common characteristics. Similarly, if you were able to come to peace with the 30-year bond futures calculations the 10-year note won’t be an issue.

To reiterate, the contract size of the note is $100,000 which is split into 1,000 handles equivalent to $1,000 and a tick value of 1/32nds or $31.25. Unlike the 30-year bond futures contract, the T-note trades in half ticks (.5/32) valued at $15.625.

Calculating profit, loss and risk in the 10-year note is identical to that of the 30-year bond. To demonstrate, if a trader goes short the 10-year note futures from 123’29.5 and places a buy stop to protect him from an adverse move at 125’15.0 the risk on the trade would be 1’17.5 or 1,546.87. This is calculated by subtracting the entrance price of the short from the potential fill price of the buy stop at 125’15.0. Once again, the math requires borrowing from the handle in order to properly subtract the fractions. This is done by adjusting the stop price from 125’15.0 to 124’47 ((125 – 1) + (15/32 + 32/32)).

47/32 – 29.5/32 = 17.5/32, 17.5 x $31.25 = $546.87

124 – 123 = 1, 1 x $1,000 = $1,000

Total Risk = $1,531.25 plus commissions and fees

5-Year Note Futures

The 5-year note futures contract is identical to the T-bond and the 10-year in terms of contract size. Each 5-year note futures contract represents a face value of $100,000 of the underlying security. Once again, the contract is comprised of handles valued at $1,000 and each handle is divided into 32nds. However, in the case of the 5-year note each 32nd is broken into 4 minimum increments. In other words, each 32nd moves in quarter increments or .25/32. If you recall, the 10-year note has a minimum price fluctuation of .5/32, and the 30-year bond has a minimum tick value of 1/32nds. If 1/32 is equal to $31.25, and .5.32 is worth $15.625, then we know that .25/32 must be $7.8125. Nobody said this would be easy. The futures markets can be potentially lucrative but there is no such thing as “easy money”.

There aren’t any surprises when it comes to 5-year note futures calculations, other than the fact that they trade in quarter ticks. However, this only requires an additional digit to be typed into your calculator as the process remains the same.

A trader that goes short a 5-year note futures from 119’10.25 and places a limit order to take profits at 117’05.50 will be profitable by 2’04.75 or $2,148.43. This is figured by subtracting the limit order price from the original sell price.

10.25/32 – 5.5/32 = 4.75/32, 4.75 x $31.25 = $148.43

119 – 117 = 2, 2 x $1,000 = $2,000

Total Profit if Limit Order Filled = $2,148.43

2-Year Note Futures

The 2-year note futures contract is the “oddball” of the Treasury complex. Unlike the others, this contract has a face value at maturity of $200,000. Thus, the value of a point (handle) is $2,000 and 1/32 is equivalent to $62.50. Like the 5-year note, the minimum tick is a quarter of a 32nd, or simply .25/32. In dollar terms this is $15.625.

The difference in the face value of the 2-year note relative to the other Treasury futures contracts is due to fact that the U.S. government issues significantly more debt in the 2-year maturity than any of the others. Accordingly, there are more 2-year Treasury notes traded in the underlying cash market. In other words, the CBOT opted to list the contract with a $200,000 maturity face value to provide “economies of scale” for market participants. This translates into saving the hassle of paying an additional commission which is interesting and noble logic for an organization that survives on trading volume.

Due to diversity in contract size and point value relative to the other Treasury futures, calculating profit and loss in the 2-year note must be slightly adjusted. A trader that is long a September 2 year note futures at 109’11.75 and is later stopped out of the trade at 108’02.25 would have realized a loss of 1’9.5/32 or $2,593.75 (remember, 1/32 = $62.50).

11.75/32 – 2.25/32 = 9.5/32, 9.5 x $62.50 = 593.75

109 – 108 = 2, 1 x $2,000 = $2,000

Total Loss = $2,593.75

Eurodollar Futures

Many traders confuse Eurodollars with the Forex currency pair Euro/Dollar. They may sound the same, but that is where the similarities end. A Eurodollar futures contract is written on a 3-month interest vehicle denominated in U.S. dollars but deposited in off-shore banks. In its simplest form it is a Certificate of Deposit located in a foreign bank. Accordingly, the interest rates offered to Eurodollar holders (in the cash market) are relatively low due to the perceived risk of default being minimal.

Together, the CME Eurodollar futures and options and lead the worldwide industry in open interest and based on daily trading volume, Eurodollars are considered the most liquid futures market in the world.

The contract size of a Eurodollar futures contract is $1,000,000, and similar to the other interest rate futures products, contract expirations are quarterly; March, June, September, December.

Eurodollar futures are quoted in handles and decimals and are simply an inverse of the corresponding yield. For example, a Eurodollar price of 97.50 implies a yield of 2.5%. This is figured by subtracting the contract price from 100 (100 – 97.50). Clearly, yields can’t go to zero, so we can infer that the Eurodollar will never trade at 100.00. Thus, as the futures price approaches 100.00, you should consider market fundamentals and technical analysis to construct a bearish strategy.

The point (handle) value of a Eurodollar is $2,500 and the tick value is $25; so a drop from 99.50 to 98.50 equates to a profit or loss of $2,500 per contract. The Eurodollar futures contract has a minimum price movement of a half of a tick, or $12.50 for most months but is a quarter of a tick, $6.25 for the nearest expiring month. This is likely because the near month Eurodollar futures contract doesn’t typically see much in the way of price change. The daily price change in the front month is typically less than 5 ticks, making it a great place for beginning speculators to get their feet wet. However, considered yourself warned, the deferred Eurodollar futures contracts will react more violently to changes in interest rates or climate. If your risk tolerance is low to moderate, stay with the near month.

Calculating the profit, loss and risk of any given Eurodollar position is different that that of the Treasury complex but is also less cumbersome. Before you begin your calculation, you can simply move the decimal point and multiply each (full) tick by $25. For instance, if a trader buys a December Eurodollar futures contract at 99.085 (99.08 ½) and later sells it at 99.290, the realized profit on the trade would have been 20.5 ticks or $512.50. The mechanics are the same as the other contracts; it is just the point value that differs (but don’t forget to move the decimal two places to the right).

9929 – 9908.5 = 20.5

20.5 x $25 = $512.50

The information included in this article certainly won’t make or break you as a trader, but without familiarity of the basic specifications of the contract that you are trading you aren’t giving yourself a fair shake. After all, awareness and experience may prevent you from becoming emotional or panicky while your hard earned dollars are on the line.

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.

Event risk is looming in the financial markets.

On a scale of 1 to 10 this week's calendar event risk is a 12. We will be hearing about home data, employment data, manufacturing data, and sentiment data all while attempting to digest a mid-week Fed meeting (did I mention the State of the Union Address?). Economic data has been consistently strong; it doesn't make sense to expect otherwise. Yet, the financial markets have reacted to both good and bad data in the same manner (buy stocks, sell bonds, sell the dollar, etc.). If there is anything that could change that pattern, it would be a good old-fashioned price squeeze. Big events such as Fed meetings and payroll reports are often the catalyst for such last hurrah trend extensions followed by eventual reversals. This week feels like it is setting up to be one of those times.

A healthy jobs report, a potential Dodd-Frank peel back, and renewed talks of tax cuts propelled markets higher.

Financial futures traders loved Friday's events and they expressed that sentiment by buying into US assets. For the first time in a LONG time, the jobs report was judged by its merit as opposed to the anticipated reaction by the Federal Reserve. In other words, the markets no longer seem to be held hostage by the Fed's every move. Instead, investors are looking to speculative economic growth as the driving factor with the Fed's monetary policy as a secondary concern.

Non-farm payrolls grew by 227,000 in January but the good news was slightly dampened by sluggish wage growth. On a positive note, the unemployment rate ticked higher to 4.8%. No, that isn't a typo...a higher unemployment rate is a positive. The increase in the unemployment rate is a sign that the labor force has increased. In short, some of those who were discouraged from looking for work have found a reason to get back on the job-hunt (remember, the headline unemployment report fails to recognize those who stopped looking for a job out of frustration but are still unemployed).

Where did the ES futures volume go?

At the time this newsletter was being written, volume in the December e-mini S&P was creeping up on the one million mark in contracts traded. This is dramatically lower than the 1.5 to 2.0 million we were starting to get used over the last three or four weeks of trading.

Our theory is that many of the highly leveraged market participants have moved to the sidelines after a rough period of trading. Don't forget, bear markets lure traders to the futures markets like flies on "fertilizer". This is because most speculators believe there is quicker, and bigger, profits to be made during sell-offs than can be made during a bull market phase. Their assumption is true, but it also comes with elevated risks.

The big sell-offs in August and September brought traders to the markets, but the October rally has likely chased them back into hiding (particularly the massive short squeeze seen on Thursday and Friday of last week).

What does this mean going forward? Two things stick out in our minds; first, the e-mini S&P 500 bears will think twice about selling into a market that has burned them (twice). Second, if these traders stay sidelined and volume remains light, the path of least resistance will continue to be higher in the stock market (light volume tends to see melt-up type of trade).

As most futures traders expected, the Federal Reserve didn't take action

Going into today's FOMC meeting conclusion, the Fed Funds futures markets were assigning a 15% probability of a rate hike. As it turns out, the majority of traders were correct in assuming the Fed would bypass the September meeting. In our view, we probably won't see any action until December but of course, the November meeting is still up in the air.

We recently took part in a survey conducted by FXStreet.com in which we found the results to be rather interesting. According to the survey, expectations of the rate hike campaign are rather meager. The consensus average of those polled is calling for the rate hike cycle to stop at about 1.5%. Some were even predicting the Fed would stop at .75% (only one more rate hike from the current level). Also interesting, almost 60% of those polled believe quantitative easing is a tool the Fed will continue to use in the mid-to-long term.

If you are interested in seeing the details of the survey, click here: (http://www.fxstreet.com/analysis/fxsurvey-dovish-fed-to-hike-interest-rates-in-december-qe-might-return-in-the-mid-term-201609201150)

Despite a lack of economic data in the US, the markets found a reason to bring the ES to 2100ish.

The economic data schedule was skimpy in the US this week so investors were focused on news coming out of China. Word of Chinese exports tumbling 10% while imports also softened by 1.9% triggered global selling in stock indices. However, as has been the case since early 2016 market corrections are merely a signal for dip buyers to put money to work. Overnight and early morning losses were quickly shored up by afternoon trading.

On the lows of the day, technical oscillators were suggesting the sell-off had gotten ahead of itself. As it turns out, they were right. However, the lack of volatility has become silly. A 50 point decline in the S&P shouldn't constitute an oversold market.

Tomorrow's docket is relatively busy. We'll digest inflation data along with the latest consumer sentiment readings.

After today, the payroll report seems like child's play

The thing about tables is, they ALWAYS turn; the same can be said of market trends.

Just as I was preparing to type the sentence, "In my decade+ experience as a commodity broker, I've never seen anything like what we saw in the euro today", a correspondent on CNBC pointed out the March 2009 euro rally. On March 18th of 2009, the Fed announced a round of Quantitative Easing that sent the dollar reeling and the euro soaring. On that particular day, the euro was up about 3.5%. At the peak of trade today, I believe the euro was up about 3.3%. (I'd to the math, but it won't change anything and I've had a long day).

Ironically, we had been looking for the seasonal euro rally for several weeks with a short put strategy, but couldn't justify holding on to the trade into the ECB meeting. Instead, we decided to buy back our puts and sell strangles; a decision that, and the time, was sound in nature; but in hindsight was horrible. We were bullish, why get into a neutral strategy?

Nevertheless, after a lot of intraday shucking and jiving, we appear to have survived. Unfortunately, I'm not sure many traders survived the day. The way the Euro was running high in clips of 10 to 20 pips at a time, is a clear indication of margin call buying and risk manager liquidation of futures accounts. We suspect the margin calls will continue into the night session and tomorrow (and this includes the ES). So look for another round of selling in the ES, and buying in the euro. We've heard rumours of some big hedge fund blow ups, and I can assure you there are enough retail trader casualties to fill a large graveyard.

This week's news docket is skimpy but be cautious of the Fed's Beige Book on Wednesday afternoon.

I'm sure there will be plenty of headlines coming out of DC, as usual, but scheduled economic news is thin. This should leave traders focused on earnings, which are projected to be relatively positive. As mentioned in the previous newsletter, when earnings season arrives during a market dip it tends to be supportive. We suspect this time will conform to the norm, leading the S&P 500 futures higher for the next couple of weeks.

With that said, don't underestimate the potential market reaction to Wednesday's Fed Beige Book. With the Fed's interest rate hike campaign in full force, the markets will be interested in knowing their thoughts on the domestic economy.

Also, the early April stock market dip could have been tax related selling (investors liquefying to pay tax bills). However, post-tax deadline we could see funds flow back into the market equity.

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 traded lower two days in a row for the first time since late September.

Although losses were minimal, the ES managed to settle in the red on two consecutive trading sessions to close out last week. In a normal market this wouldn't be worth a mention, but in this market, it is a rare occurrence. The last consecutive negative closes took place on September 25th and 26th. Before that, you have to scroll the chart back to early August!

I doubt the _bulls_ are concerned in light of the fact that the ES is within 15 points of its all-time-highs. On the flip side, the _bears_ must be growing concerned over the fact that the seasonal tendencies from Thanksgiving through the end of the year generally call for higher stock prices.

That said E-mini S&P futures traders are holding one of the longest positions we've seen this year. Thus, one has to wonder if the bulls will soon run out of capital. After all, most of the bears have already been squeezed out of positions. This is true even in the stock market, the percentage of outstanding short positions on individual equity products is near record lows.