11 DAYS AND COUNTING

Most of you may already know that I did not go to college. I passed it up so I could start working on the floor. I am sorry to repeat it, but we are picking up new friends every day and the other part is I don't mind talking about it.

Good or bad student, it didn't really matter. My thing was building something. I never liked working for people, so when I ended up on the floor I knew I had found my calling. I was a brawler on the streets and I found a room of two thousand brawlers all fighting for the same thing … making money. They say there are only a few occupations that a person can make so much money fast: brain surgeons and traders. Well, the latter was what I was looking for. The energy on the floor was so thick you could feel it. I was in my element and I knew it. The problem was how to get it going? I didn't have a Ph.D. (Papa has Dough) and no one was saying, “Hey, Danny, come over here, I'll help you.” Nope, thats not how it worked down there. When you go to the school of hard knocks you don't expect any freebies. It all has to come from hard work. Brawn over brains was what I was all about…. but that's not how it works now.

Making money the old way is gone. It has been replaced by computers that do not care where the profits come from. They don't care if you have $10,000 in your  account or $100mil. They are there to steal your money, and the owners of those computers will look you square in the face and tell you they do nothing wrong. Well, you know what? That is the single farthest thing from the truth. The Pit Bull taught me early on that program trading would one day take over, and it has. Running buy stops then running sell stops and then running buy stops again in one day is not normal price action. A great example was yesterday's trade in the ESZ. Initially the SPZ sold off in hitting sell stops from 1401 down to 1397.80. Then the SPZ ran buy stops above 1405 to 1407 and then reversed, hitting sell stops under 1401 again but this time running sell stops down to a new late in the day low at 1395.70.  

You want to learn to fight the computers? Well, I will tell you how to do it. The first thing is trading in and out all day is over. If you're doing that you're losing and you're feeding the algos, so don't do it. The second thing is in today's new order world you have to be 100 times more patient. And the other part of this is you have to let the buy and sell programs run their course. Can we beat the program boys? Sure we can, but it's going to take a lot of work. …

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:
As we head into the end of 2012, warning lights are flashing. Spain, Italy, Greece … who is next? Let's keep it light today; the markets are weak and they should be. After a big run-up it's back to reality. Including today, our government officials have 11 days to clear up the fiscal cliff. A few weeks ago I said the longer they take to make a decision the more likely a downgrade becomes. We know you can play both sides of the markets, but we are sticking with selling rallies, especially if the rally is early. As always, keep an eye on the 10-handle rule and please use stops …

Today's data:

• It's 7:30 a.m. and the SPZ is trading 1391.70, down 5.7 handles; crude oil is down 97 cents at 86.21; and the EC is at 1.2886, off 50 pips.
• In Asia 7 out of 11 markets closed lower (Shanghai Comp.-0.89%, Hang Seng -0.62%).
• In Europe 11 out of 12 markets are trading lower (CAC -0.28%, DAX -0.22%).
• Today's headline: “Yen Gains, S&P Futures and Commodities Drop as Fiscal Cliff Looms”
• Economic calendar: Today: Bank Reserve Settlement, Cleveland Fed's Sandra Pianalto speaks, MBA purchase applications, new home sales, API, Fed governor Daniel Tarullo speaks, 2 yr note auction, Beige Book.
• Globex volume: 1.63mil ESZ and 13k SPZ trade
• Fair value: S&P -4.5, NASDAQ -7.75

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