SLOW TRAIN TO CHINA; BOND GORILLA

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

By Danny Riley
We have seen a lot of things and been to a lot of places, but we have never seen it this slow. Yes, there have been “holiday” slowdowns, but none that affected the markets the way this slowdown is doing. You can read it anywhere you like, but we give it to you direct from the floor. Over three months ago I told the Pit Bull that there would be a day in July where total volume on the NYSE would drop below 500mil shares, and at 2:39 CT yesterday there were just over 350mil shares traded on the board. When we harped about how slow the markets would get over the summer and talked about how low the volumes were back then, most people said that low volumes don't matter. Well, guess what, ladies and gentlemen, volumes DO matter. Like we said, we don't have to hear about how slow it is on CNBC or read a story about it on Bloomberg. We have a desk on the floor of the CME that sits 10 feet from the S&P pit and 3 feet away from the S&P options.
  Everything was fine until MF Global. The desk was humming along and then bam, MF is gone. Most shops were already gearing down for year end and then in comes MF. It killed the floor. Then in come the holidays. The two combined almost halted trading. Then things picked back up as the S&P started selling off in April, but like all the declines lately, the selling let up, and we all know there is less volume on the upside. Then, ding-dong, in comes PFG. Yes, we know everyone is trading less. From the hedge funds to the prop shops, it's like someone turned off the trading switch. Maybe we didn't say it as well as Bob Pasani when he said that it's not a “dog days of August” story. This is a secular decline, not a cyclical decline. Volumes have been dropping for four years. It's not because “the machines are taking over.” Please. The decline is caused by the devastation wrought by the 2008 financial crisis. Great stuff, Bob, please tell me something we don't know. People have been losing jobs in this industry ever since the word “subprime” was mentioned. It's quite simple: If you can't pay your electric bill, how can you trade a stock account?

THE 800LB GORILLA LOST SOME WEIGHT IN 3 WEEKS – BONDS
By Eubie
So let's take a step back in time to three weeks ago when we wrote that the EQUITY BULLS needed to BREAK the BOND BULL as that was what was weighing on the SPX; and man, what a call we made from the ESU 1332 & the KEY REVERSAL DAY in BONDS! It should be no surprise to any MTS reader or IM PRO subscriber that we have been discussing the relationship between BONDS & SPUs & the disconnect & overhang that the bonds had had when we were trading 1332.00 and the 50% FIB# late July. To have ignored this relationship was a portfolio peril. So now what? Take a look at the charts below as you will see that the ZB 30YR BOND is “PUNCHING” its lower BOLLINGER; this should give a pause in SPU's. To ignore this relationship after yesterday making monthly LOWS in BONDS would be throwing caution to the wind.

WITH SPU's WINNING THE BATTLE SINCE SP FUT 1332 16 DAYS AGO:

For today:
As we head into the end of the week and the August expiration, we do it knowing two things: 1) the markets are extremely slow and 2) the markets are still trying to go up. According to the S&P cash study, the Thursday before the August expiration has been up 16 / down 12 of the last 28 occasions and expiration Friday has been up 15 / down 13 of the last 28. So the overall bias is still up. It's our feeling that the ESU will attempt to take out the most recent highs and take a stab at the April 2 1420 highs. Overall we still lean to buying weakness. As always, keep an eye on the 10-handle rule and please use protective stops.

• It's 6:00 a.m. and the ESU is up .50 handles at 1404.00, crude is down 11 cents at 94.22 and the EC is trading 1.2226, down 11 ticks.
• In Asia 6 out of 11 markets closed lower (Shanghai Comp -0.32%, Hang Seng -0.45%).
• In Europe markets are mixed; 6 out of 12 are trading higher (CAC -0.25%, DAX -0.25%).
• Today's headline: U.S Futures Seen Higher Ahead of Jobless Claims Numbers.”
• Economic calendar: Housing starts, jobless claims, Philadelphia Fed survey, e-commerce retail sales, Fed's Kocherlakota speaks and we have earnings from Wal-Mart, Dollar Tree, Sears, Ross Stores, Aeropostale and Gap.

• VOLUME (LOW): 1.1mil ESU and 4k SPU traded
• SPREADS:  560 SPU/Z spreads traded
• FAIR VALUE: S&P +1.00, Nasdaq +5.00

Wednesday's S&P 500 futures wrap-up:
Treasuries were giving up ground in the premarket, extending their recent range. Equity bulls are hoping this leads to further asset reallocation as signs on the economic front have picked up and GS as well as other analysts expect QE to be pushed out to possibly year end versus September. Homebuilders' confidence at highest since Feb. 2007; gauge of sales expectations improves. Today's housing number added to the recent upturn in the housing numbers as well as other more recent firming economic readings as the Eurozone headlines have been somewhat tempered of late. Vacation… However, the economy has not turned the corner quite yet, evidenced by GS laying off approx 25 people in sales and trading jobs. Reported about an hour before the European close: Sep Bunds hitting fresh session low at 141.58 as downside erosion continues with traders attributing move to: 1. Risk-off trades getting stopped out 2. Peripheral bonds moving higher, with Italy leading the move 3. Bank stocks gaining 4. Switching out of German Bunds into US Treasuries 5. Thin volume exaggerating price action.

Henry, Stanton Analytics: Is there a sound reason for the odd underperformance in energy stocks given the outperformance in the crude complex. $XLE $ERX?
The reason for the crude surge and the Rbob is a short-term phenomena. The energy stocks are lower because of the relative demand for the crude and the products. That will change, but not immediately. Nevertheless, the products have great numbers from the DOE today, they are poised to go higher. That will drag crude up with it; the energy stocks will catch on the next pullback in crude. That sounds stupid, but when the crude falls the refinery margins rise. That is where they make their money, on the downstream. I really think that money has sidelined the energy stocks until after the election. One can say without much argument that Obama is not pro-oil.

Wednesday's S&P 500 trade started with 193k ESU and 800 SPU traded on Globex, trading range 1400.70– 1397.10 / Tuesday's range 1407.20 – 13 97.25, settled down 1 handle. The RTH's opened 1.5 handles lower at 1400.00 – 1400.30, traded 1399.50 and popped to 1401.30 and on to 1404.60 just before the NAHB release as the DJT were testing the 200dma. The spoos ticked 1404.80 minor new high and by 9:30CT reports of a large trade in the XLF in the mkt Oct 16 calls 100,000 were BOUGHT – chatter was it was an OPENING trade –  the price action in the spoos showed little reaction as the market drifted lower and the sideways trade was on. Some days this is all you get… David_Williams, (11:49:30): if you look closely at a 1 min chart, I think the chart is giving us the finger there on the 12:45 bar…  After holding at 1401.50 the spoos settled in a tight trading range until 1:35 when the equities began to grind up to retest the daily highs 1404.80 and elect the stops that quickly popped to the HOD 1405.60 before 2:00 and backed off. As 1403 area was trading, the closing imbalance were mixed showing 18 /30 DJIA TO BUY / MICE NUTS and the broader market showed only $20M to sell side. The cash close traded 1403.00 before settling at 1403.50 up 1.9 handles.

MTS video: http://www.mrtopstep.com/2012/08/8-15-12-mark-sebastian-covering-options/
MTS charts: EUBIE  ”2XTOP IN THE MAKING? $ESU 1407″ http://wp.me/p1Rnj9-6tI
MTS charts: EUBIE “BONDS $ZB 30YR FOLLOW-UP / $ESU 1332 / +10% IN PAIR TRADE!” http://wp.me/p1Rnj9-6ts
Trading Volume Slumps to December 2007 Lows http://tinyurl.com/8gvlgjq

Please visit www.mrtopstep.com and take a look. There are webinars, market updates, news and more… Also, please click on the education tab http://www.mrtopstep.com/trading-101/ We believe there is very useful information on the MTS site – so take advantage and check it out while you start your free trial.

FREE trial http://www.mrtopstep.com/FREE/ and our offer of a FREE MONTH in the chat room with a quarterly signup is still good: http://www.mrtopstep.com/offera/

________________________________________________________________________

CONTRIBUTORS' CORNER

SPX CHARTS

Roger Volz, BGC Partners

SP 500 Futures First Look…..…daily charts bend but bears still not able to convert the rising 8-day SMA at 1399.25. Close below is needed to confirm the first phase of momentum loss. Expiration week maintains undertone while a spate of fixed income to equity reallocation programs provide intermittent spikes against the next ledge of daily chart resistances at 1405.50 / 1412.00

   5 min Model and Indicator….am spike scores initial VST OB read on reach above 1404.20. The following corrective pullback fills in to the 2:30am globex high at 1400.70 leaves prices in a retest attempt.

VST 5 min OB > 1406.75 from 1404.25  /// VST 5 min OS < 1396.00 from 1394.25….

____________________________________________________

YOU WANT A LOOK AT WHAT OUR TRADERS SEE EVERY DAY? SIGN UP FOR THE IM TRIAL AT http://mrtopstep.com/free/ IT'S THE REAL DEAL!

_____________________________________________________

Sign up for our free mailing list at http://mrtopstep.com/ for full report.
Follow us on Twitter @MrTopStep http://twitter.com/mrtopstep

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.

Originally posted here...