AN UNCH'D 2QTR; TRADER TALK

By Stephen (Eubie) Eubanks

We closed MARCH 31st 1321.40 in the June contract with APRIL 1st 1327.70 settle.

With today's Sept's 1325 print (add back the -7 ROLL=1332 June) we are on the April 1st HIGHS. Where has the 2QTR gone? We went from having the best 1QTR in a long while to practically being up only +10 handles for the YTD in the 2QTR two weeks ago. So what's with a QTR UNCH'D here? Was there VOLATILITY? OH BOY WAS THERE!!

2QTR has been one of the best trading volatility quarters we've seen since last summer. Just since last week's Wednesday & Thursday the VIX has jumped over +30% since hitting 1357 SPU's last week & the subsequent selloff to 1302.50's this week. With a VIX that can run +30% and the SPU's decline bye more than -3% and some 50 handles in 48 hours, someone has some “wrong” trades on.

Oil? How'd that do this 2QTR? Yikes, -25% from April MONTH END! Sir, I'd like to have an UNCH'D market rather than losing -25% in 36 days trading oil. So be careful what you wish for;  sometimes a return of money is better than a return on money & we can't say that for all markets the last 3 months.

Bonds, on the other hand, were true winners, starting the 2QTR 140's in the 30YR and peaking at 153 near +10% in early June. So who's to say that these types of divergences won't be the norm for the remainder of 2012, but what we can say is this has become more of the norm in today's trade. Welcome to the 3QTR around the bend!

Our view:
When was the last time you got 17 people in a room to agree on the same issue? Most traders we talk to on the floor said they did not think anything concrete would actually come from today's meeting, that when the G-8 meets at the end of July would be when they pull things together. Despite the S&P “trying” to rally, it is not actually making much headway going in either direction. If you're a bull you want to see the SPU back above 1350+. If you're a bear you want to see it back below 1300.  As we go into the end of the second quarter and into the Fourth of July holiday, the markets are going to go from slow to slower. The way we see it is like we have seen it for weeks; it is just too early in the summer and in the European process to actually stage any rally of significance.  We lean to selling rallies. As always, keep an eye on the 10-handle rule and please remember to use stops.

For today:

• It's 6:00 am and the ESU is down 5.75 handles at 1319.75, crude is down 15 cents at 80.06 and the EC is trading 1.2443, down 25.
• In Asia 6 out of 11 markets closed higher.
• In Europe 11 out of 12 markets are trading lower (DAX -1.53%, CAC -1.10%)
• The main headline this morning: “European Stocks Retreat Before EU Summit.”
• Today's economic calendar: GDP, jobless claims, corporate profits, EIA nat gas report, Kansas City Fed Manufacturing Index, Cleveland Fed president Sandra Pianalto speaks in Cleveland, Dallas Fed president Richard Fisher participates in a moderated discussion in Aspen, Colo., 7-year note auction, farm prices, Fed balance sheet and money supply.

• VOLUME:  1.8mil ESU and 7k SPU traded
• SPREADS:  210 SPU/Z spreads traded
• FAIR VALUE: S&P -7.00,  Nasdaq -12.00

Closing Print Video:  http://www.mrtopstep.com/videos/?id=20351

Wednesday's wrap-up from the S&P pit: European Summit No Tap …

Wednesday's S&P index futures trade started with 210k ESU and 1.1k SPUs traded in Globex, Asia down across the board and Europe mostly flat to modestly higher. On the 8:30 open the SPU traded 1318.20 to 1318.50 and right away shot up to 1321.30, pulled back down to 1317.50. Just before 9:00 a small index arb buy program pushed the futures back up near the highs as the pending home sales number came in higher than expected; 5.9% vs theestamite at 1.0% and the SPU took off to the upside making an early morning high at 1325.70, pulled back a few handles and then did a retest of the high at 1326.00. After making the high the SPU sold back off down to 1321.80 the SPU got hit by another buy program that took the futures all the way back up to new highs at 1327.50. The next move was back down to 1324.00. It's extremely slow on the floor; at 12:50 ct total volume in the ESU is 1.2mil with only 3k big S&Ps traded. Total volume in the CMEs S&P options is 6,666; 2.9k calls and 5.5k puts trade. The SPU traded 1323.80 popped up a bit then traded down to 1322.50. As we headed into the crude Oil close we traded on 2hr lows under 1323 without a lot of umph just as Bonds made “new highs bye a tic”. The bonds continued to make new highs in the later part of the day, this pushed the VIX back up on the day and applied selling pressure on the S&P. After some “back and fill” at the 1323.00 to 1324.00 level the SPU started moving back up again and traded up to 132730 just before 2:20 ct. At 2:22 we put this out on the instant message : 02:21:45 TRADINGDATA2: here comes your new highs. Like clockwork in came the buy program that pushed the futures up to a new high at 1328.20. At 2:45 18 of the DOW 30 were to buy small and the broader market MOC showed SELL 270mil. After making the high the SPU sold back off down to 1324.50. With all the QTR-END chicanery & T+3 we closed the cash 1325.74 with a 1325.50 futures close, up 10 handles on the day.

Major macro events to watch 6-27 thru 6-29:

• Fri June 29 – Summit of EU heads of state and government in Brussels. June 28-29.

• Fri June 29 – EC issues quarterly report on euro area

• Fri June 29 – Euro-area May M3/private-sector loan data·

• Fri June 29 – Eurozone flash June inflation.

• Fri June 29 – German lawmakers to vote on fiscal pact/ESM on June 29

• Chicago PMI, Consumer sentiment

MTS video:   http://www.mrtopstep.com/2012/06/6-26-2012-brian-shepard/

May we suggest you visit http://www.mrtopstep.com and http://www.mrtopstep.com/trading-101/  Please read & reread …. we talk about the content on that page in the room often.

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CONTRIBUTORS' CORNER

SPX CHARTS

Richard Chappell, Channels & Patterns

The bounce I was talking about yesterday morning obviously happened and no technical damage at all has yet been done to the bear case here, with the rally so far failing at Thursday's low, and the close at the middle bollinger band on the daily chart:

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