Market Overview



By Danny Riley

Oh boy, you want to talk about some rough stuff in the CME's futures pits? Well, the wildest times ever were on a Friday 8:30 open of a quarterly expiration, otherwise known as the “quadruple witch.” This is not your monthly expiration, it's the quarterly, the big one. On this day, contracts for index futures, index options, stock options and single stock futures all expire at once. Today it's a whole different story.

In the 1980s and 1990s (pre-electronic trading) the quarterly quadruple witch expiration saw the heaviest concentration of large (size) orders than at any other time. Back then it was not unheard of for the NYSE to print over 1bil shares on the open (total volume for a full day averages around 650mil to 700mil shares a day today). Everyone would talk about what was exercised and how many futures that meant to buy or sell. Program traders loved the day because many times the S&P cash would open in one direction while the paper was going the other direction. There were times when Steve, the program trader at UBS, would sit on over 1,000 big S&Ps and depending on how the futures moved he would just feed the cash out as the S&P went up. If the futures started going down he had me in the pit and hit dot system set up to manually sell the cash. Before he was at UBS he worked at Spear Leeds Kellogg doing program stuff, but at UBS he was able to up the size anytime he wanted. On expiration Friday Steve would call the direct line into the desk and ask “Is Danny in yet?” He knew Thursday nights were big in Chicago and when he had a big load to do he wanted me on the phone. Sometimes we would start out doing 200-lot clips and bang out 1,400 or 1,600 big S&Ps. Other times he would just have me quoting and all I would hear is “sell 100 at 889.50, 100 at 890.00, 100 at 890.50” on up. It would happen so fast half the time he would be saying … we had to do better! But it was so busy with all the other clerks and phones ringing it was a human order machine and I was the captain. Brian ran the desk. He tried to keep order, but as the volume increased at the desk and the level of testosterone in the room picked up to such high levels, fights could break out at any second. If that happened others would start jumping in, and if the trade is disturbed they could write you up for that.

Today it's different. The pit that once had over 300 locals and order fillers standing in it has 70 on a normal day and 80 or 90 on a big day. Overall the days of big order flow into the S&P pit are gone. Occasionally a big order will roll through the pit buying or selling 300 or even 800 big S&Ps, but the days of our desk being turned upside down by the program trades or big funds buying or selling are gone, it's all ES now. The roar of the pit is now the sound of a few brokers bidding and offering and the hum of the computers. The big fights between the brokers and locals are pretty much gone also, but don't get me wrong; it's still the biggest futures pit in town!

MrTopStep Closing Print Video:

Our view:
With the EC, the Fed and now the Sept rollover in the rearview mirror, it's time to set your sights on today's quad witch and the rebalance and then end of the third quarter next week and the election in 46 days. Not sure about you, but the last nine months has gone by fast. As far as today, we lean to buying weakness. As always, please keep an eye on the 10-handle rule and please use stops.

  • It's 6:00 a.m. and the ESZ is up 3 handles at 1456.75, crude is up 65 cents at 93.07 and the EC is trading 1.3031, up 50 ticks.
  • In Asia 9 of 11 markets closed higher (Hang Seng +.70%).
  • In Europe 9 out of 12 markets are trading higher (CAC unched, DAX +.40%).
  • Today's headline: “European Stocks Rally on Report Spain Is in Bailout Talks.”
  • Economic calendar: Quadruple witching, Fed's Lockhart speaks, iPhone 5 shipping date.
  • VOLUME: 1.74 mil ESZ and 10k SPZ traded
  • SPREADS: 6k SPU/Z spreads traded
  • FAIR VALUE: S&P -0.19, NASDAQ +1.8

S&P Cash Expiration Study for September:

Friday Up 17 / Down 11 of the last 28 occasions


Brian Shepard's Market Recap
Weakness in the overseas market followed the weak US equities close yesterday. The PMI release in China, 11th straight month of contraction and Europe continued to indicate weak global growth as US companies dribble in with profit warnings and this morning's initial claims 382k exp 375k add to the list of concerns. However, the equities price action did not follow the past months of a bad economy – is good for the indices as the consolidation trade remains in place following the central banks(s) actions over the last two weeks. There is chatter of further sovereign downgrades as Spain, Greece and Italy remain on the sidelines as the Eurozone headlines have slowed. Next week that should change as the macro calendar picks up overseas. Oh, crude was trading in a tight range following the 8% drop this week.

Midday observation: Regarding the S&P rebalance tomorrow.
Srosen: yep, big one, making a change to the way they calculate the index so a few names have some bigger rebalances than normal, obviously doesn't affect the index as a whole but reason why some names may act a bit funky today and tomorrow (e.g. why BRKb is outperforming today)
elway: 35 bln notional , it has been pre traded for couple months, the basic premise is all shares cross held by stocks like BRK have to have their free float reduced so names like KO, WMT Ecolabs etc all have to have less of a weighting. before a cross shareholding was determined as above 10% now 5%. more names affected due to this.

Late trade of note: SPX huge print just went up the trade created $1bln (yes 1bln) of SPX notional deltas for sale off the back of it (mkt took it VERY well) SPX in the mkt 13,500 of the Dec 1450 puts were BOUGHT

Thursday started with 317k ESZ and 2k SPZ traded on Globex, trading range 1445.25 – 1454.00 / Wednesday's pit range 1451.70-1459.20, settled at 1453.20 up .3 handles. Mike_V (08:36:28): there is 2x top potential today at 1453/54 as it is the daily / 3 day pivot lockstep price magnet potential. Today's RTH's gapped 6 handles lower to 1447.00 – 1447.50 on signs of equity weakness across the board. Weakness in the financials lead the spoos to 1443.80 low before a recovery up to 1448.50 at 9:15CT. The DJT were down 100 points after NSC warned and the contracting economic data. Crude was trading just above $92, down slightly and the bonds were up nearly a point. The Philly Fed showed -1.9 exp -4.0, 5th consecutive negative report. Short covering and buy programs lift the spoos to 1451.00 at 9:40 followed by 1452.20 high by 10:03CT, heading into the European close. william_blount (9:36:52): BEARS NEED TO REASSERT CONTROL BEFORE 10:05CT and they could be in real trouble above 1453 and that time –real trouble. After printing 1452.20 high the sideways grind set in, holding 1448.50, then posting a new high of 1452.50 at 11:05 and holding in the upper end of the days range. After a few handle sell off the SPZ got hit by a small buy program that pushed the future backup to a retest of the high and then retreated back down to the 1450.50 area. After a little back and fill the SPZ made a new high of 1453.00 at 1:30, then1453.50, just a half a handle off the 1354.00 overnight GLOBEX high. Going into the closing imbalance 1455.00 HOD traded. At 2:45 18 of the Dow 30 were to buy and the broader market showed SELL $190mil. On the 3:00 cash close the SPZ traded 1453.70, settled at 1453.80 up .6 handles on the day.

MTS video: Top Notch




Richard Chappell, Channels & Patterns

The most important chart for direction today is the SPX 60min chart. SPX bounced at short term channel support on Tuesday and has been sort of crawling up it since. If it gaps under it at the open, which looks likely, then we might see a retest, but the chances are that it would follow through on the downside soon. I'd be expecting a retest of the 1440 pivot today or tomorrow:
 THE QUAD THAT USED TO BE futures, trading, commodities, trader, invest, speculate, SP500, dow, nasdaq, Treasury, Bond, Note, Newsletter, education,  risk, reward, stock market, bond market





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Posted-In: Futures Markets


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