Today’s explosion: $4B emini covering

I’ve checked the grapevine, and have it on fairly good authority:  Today’s explosion was caused by a covering (or unwinding of) a 122k emini SPX contracts.

That’s a notational value of $4B.

Spx_emini_1

Someone’s stop loss got triggered big and ugly . . .

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What's been said:

Discussions found on the web:
  1. emd commented on Nov 14

    is that what a major hedge fund blow-up looks like?

    how much longer are we going to feel the ramifications of this?

  2. anon commented on Nov 14

    The mainstream financial media just drives me nuts. Here’s how the WSJ reports this rally:

    The Dow industrials jumped 86.13 points to 12218.01, a new record closing high, after a report showing wholesale inflation dropped sharply in October eased concerns about interest rates. The S&P 500 and Nasdaq hit a six-year highs. 4:25 p.m.

    The market was sideways all morning after this economic data came out yet they still attribute the afternoon rally to inflation data.

  3. jjr commented on Nov 14

    Sure this wasn’t the PPT?

  4. Michael C. commented on Nov 14

    Thanks for the info, Barry.

    From what I understand, large commercial SPX traders are at an all time high short position.

    The last time they shorted this much was in mid-2000 and mid-2004.

    I am betting they have a big eye on the inverted yield curve which is even going global, yet no one else seems to care.

  5. MarkTX commented on Nov 14

    try reading schwabs market commentary during the day or yahoos.

    I get my feed on my pocket pc during the day.

    recently and without fail……..

    all indexes are up during the day and it is because of this event-(insert anything), ie….gold,oil,bonds,inflation, et al…….

    no correlation or meaningful data is ever presented but heck all is good.

    total and complete j&%@#$….

  6. tjofpa commented on Nov 14

    Yeah, Thanks for the info, Barry.

    Now, since HD was basically flatlined at $36 until 12:30 pm, I’d be real curious to know how many of the 48,000 Nov 37.5 calls and 30,000 Nov puts traded before then. Any info on that?

  7. Perpetual Bull commented on Nov 14

    What contract is shown in the diagram? I pulled up data for December ES (S&P 500 minis). Although I also see sudden massive buying at 13:40 central, I don’t think this is so unusual. Today’s contract volume is not unusual compared to other days – same as Oct. 16, Oct. 30 for instance (one up day, one down day). I can’t see evidence that today is so unusual in the S&P 500 futures.

  8. emd commented on Nov 14

    looks like “V” which is Oct….. if you’re gonna squeeze them you squeeze the front month at/near expiration IMO

  9. ac commented on Nov 14

    Interesting Barry, one of the latest bulls in recent times when compared with economic weakness. As the weakness grows and damages the labor market this winter and spring, I wonder if the few firms doing the moving can keep it up and why are they even bothering? The mysteries continue……..

  10. wcw commented on Nov 14

    I don’t get too exercised about this stuff. Then again, as I have been saying for a while, as long as the economic data can plausibly be seen as ‘mixed’ I am net long. Sure, retail sales are trending down. The market is going to ignore them ’til they’re negative. Maybe soon, but I’ll wait for the data.

    Now the +6% homebuilder move on DHI’s earnings — that’s exciting. Give me a another 10+% and I’ll short more.

  11. David commented on Nov 14

    Barry:

    I am sorry- I have to dissagree- The IWM and the SMH were up all day and closed 2%/3% higher- What was that?

  12. Andrew commented on Nov 14

    This market is a disaster. I can’t rationalize chasing up here??? And today the DOW goes up 80 points in 15 minutes….. throw all the trades out the window.

    This is getting risky and dangerous. Does anyone consider this a mini bubble yet???? Check out EFUT 11-48 in one week…..

    This is just frustrating.

  13. herbie schlaggmann commented on Nov 14

    i wish this blog was bullish instead of bearish the last year or so….I d be sittin pretty

    ~~~

    BR
    Herbie: Your investment posture is determined by the leanings of a blog? Thats pathetic. Why don’t you grow a pair of balls and start thinking for yourself?

  14. wcw commented on Nov 14

    Pfft. Do your own due diligence.

    If you invest based on the web ramblings of people who appeal to you, for the love of all that is holy, index, index, index. Then index some more, and spend the time you save reading blogs getting a raise instead.

    Most who take this advice would gain effective alpha.

  15. BKE commented on Nov 14

    Why assume this is a closing position on a losing trade? What if a player covered his e-mini shorts versus long futures, SPY calls, or SPY, right at well-advertised resistence and yearly-highs? Kinda like lighting the fuse beneath a rocket.

    Hardly as far fetched as the idea of professionals setting up such a massive, line-in-the-sand stop for short positions. If you’ve shorted stocks stocks for longer than just a couple years, you know what I mean.

  16. Mark commented on Nov 14

    come on BR, notational value? is this another divergement we should be eksamining?

    i think you mean NOTIONAL value, and this looks to me more like someone successfully blowing out a bunch shorts and stop loss orders ~1390 area

  17. Jason M commented on Nov 14

    Here comes the spike….

  18. HS commented on Nov 14

    A futures trader would would dismiss the move as ordinary. The esz06 was trading sideways, low volatility, low ADX, for more than a day and a half creating what S&P traders call a Box. the longer in the box, the greater the move out of it because of the large accumulation of positions over the day and a half. Additionally there was a low adx on the daily charts. On top of that, expiration week always has a strong buy bias a few days before expiration. The futures started to break to the upside at 1:30 or so and MO traders hoped on the breakout, the shorts started to cover and presto…..big time breakout. as the dailies broke out today, this move can last a week or two to the upside. lok for 800+ on the russel futures and 1400+ on the es futures. these breakout moves on the dailies have a tendacy to continue formultiple days at the minimum.

  19. Gary commented on Nov 14

    The S&P has gone up 14% in 4 months. We are over 4 years into this bull market. Economic indicators are slowing or declining. The market is now moving up in a parabolic spike. One has to ask oneself whether the odds favor this being the start of something big or the final blowoff of the largest liquidity induced bear market rally ever. I have no idea how much longer this advance can continue but I suspect the end result will look similar to the gold market in May/June or natural gas in Dec/Mar. of this year.

  20. Rich_Lather commented on Nov 14

    I like the Warren Buffet analogy of the 3rd phase of a bull market:

    “Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we’re seeing that in commodities and housing…Orgies tend to be wildest toward the end. It’s like being Cinderella at the ball. You know that at midnight everything’s going to turn back to pumpkins & mice. But you look around and say, ‘one more dance,’ and so does everyone else. The party does get to be more fun — and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice.”

  21. whipsaw commented on Nov 14

    This is kind of entertaining in a way- PPI clearly shows that we are in trouble, but both equities and bonds go up. The bond guys must be laughing their asses off.

    But I can afford to be rather sanguine about all of this because of my own stupidity. Just before the elections, I was going to close out my January QQQQ calls at the close but was on the phone with some pest and managed to hit the wrong column in TWS and wound up doubling my position instead. I then planned to close out in the morning, but the damn things went up, so I left them open and have just adjusted my stop since then and am currently up 40%.

    My reading is that pretty much regardless of reality, the market is going to be shoved higher thru the end of the year. After that things should get rather ugly rather fast once the Democrats are sworn into Congress to take the blame. Until then, I’ll probably add to my calls on pullbacks and ignore the March puts in financials that I have- their turn will come.

  22. mhm commented on Nov 14

    It could be a mistyped order… it happens once in a while.

    – TSE Dec/2005: firm blows something like Y30B.

    – And in 2003(?) a NYSE member sells $4B instead of $4M of a basket of shares. Part of it was undone (by other members) but some damage was left.

  23. wcw commented on Nov 14

    Hey, another satisfied IB client. Say what you will about ’em, they are cheap, and they actually pay attention to their trouble tickets.

    Wish I’d followed you. I took my October SPX call profits at expiration and sat on them. Win some, don’t win others.

  24. whipsaw commented on Nov 14

    per wcw:
    “Hey, another satisfied IB client. Say what you will about ’em, they are cheap, and they actually pay attention to their trouble tickets.

    Wish I’d followed you. I took my October SPX call profits at expiration and sat on them. Win some, don’t win others.”

    Aw, I don’t have any gripes with IB so far (just moved options trading there from Scottrade a month ago). It was my own fault and they are far, far cheaper for options trading. The only obvious drawback is that there is a Scottrade office about 5 miles from my home and I can head over there to strangle somebody if I have to, while IB would be more of a problem.

    I also like IB’s analytics, very cool. Of course, analytics don’t help much when you do things like buy a straddle on PLAY only to have somebody acquire the underlying from out of the blue a few days later, but I suppose everybody has some of those episodes over time.

  25. V L commented on Nov 14

    Briefing.com:
    “S&P 500 broke through its six-year high of 1389 around 2:45 ET. Eclipsing that technical barrier, on no specific news, prompted a surge in buy orders for the S&P 500 futures contract, which in turn lit a fire under stocks across the board. In fact, all three of the major indices initially surging higher and logging roughly the same percentage gains lent further evidence that program trading was behind the late-day rally”

  26. whipsaw commented on Nov 14

    yes, Toddo alluded to this possibility at 1390+ yesterday and this morning. Whether buy stops or whatever, this was clearly an episode of RotM (an acronymn for Rise of the Machines if you are too uncool to already know).

    So how do we fight the Machines? We don’t, we wait for them to de-energize, probably in mid to late January. In the interim, either stand aside or hitchhike along and feed on the droppings of a dying economy. Score some kills on the short side in March, then let somebody else figure it out until next October.

  27. Rafat Philippe commented on Nov 15

    As a new comer in the investment universe of the stock
    markets I do not understand why so much pessimism is reflected in your comments.
    I have since september avoided all the Cassandras predicators such as :

    The content of Merril lynch fund managers surveys, the same survey in September was stating that they were pessimistic on stock markets when they are now rectifying their opinion (Merril Lynch survey November), they are all upbeat!! What a margin of error for professionals. I wonder if there is any inverse relationship between the market survey outcome and the market fate?
    Merril lynch economist whom is foreseing a compression of profits for the year to come, and may be a recession
    Morgan Stanley economist and market analysts foreseing SP 500 earnings for 2007 to be around 5%
    The JP Morgan strategist foreseing a downturn in stock markets for the same reasons compression of margins for the major constituents of the SP 500.
    Mr Rubini who is forecasting a recession in 2007, he has been right once for this third quarter 2006 when predicting growth at 1.5%, I assume that the random factor may be adverse for the next.

    What I have beleived in
    The statement of Mr Paulson ex Goldman Sachs CEO whom said that the economy was in good shape.
    In the investment banks profits in equity trading; look at the same Goldman Sacks graphic profile in price (homothetic of a factor 3 to the SP 500), well organised market charity start with oneself ?
    The chartist comments the “trend was up and will be up”
    Some doom sayers keep refering ad nauseum “it is the economy stupid” and I am pleased to answer “It is the stock market stupid”
    There is a book written by Mr Peter Lynch “One day down, two days up in wall street” I would wish to purchase it to pay my tribute to the historical age when there was one down day in wall street.

  28. GS commented on Nov 15

    HOW TO TRADE IN STOCKS

    The Livermore Formula for Combining Time Element and Price
    By Jesse L. Livermore

    Copyright, 1940
    Published by Duell, Sloan and Pearce
    New York

    Chapter 5
    The Pivotal Point

    Page 47 – 48
    “I do not use the words “bullish” or “bearish” in defining trends of the market, because I think so many people, when they hear the words “bullish” or “bearish” spoken of marketwise immediately think that is the course the market is going to take for a very long time.”

    Well-defined trends of that kind do not occur very often — only once in about four or five years — but during that time there are many well-defined trends which last for a comparatively short time. I consequently use the words “Upward Trend” and “Downward Trend,” because they fully express what is going on at that specific time. Moreover, if you make a purchase because you think the market is going into an Upward Trend, and then a few weeks later come to the conclusion the market is heading into a Downward Trend, you will find it much easier to accept the reversal in trend than if you had a confirmed opinion that the market was definitely in a “bullish” or “bearish” stage.

    Page 54
    “Fascinating almost beyond belief, the study of Pivotal Points is, you will find, a golden field for personal research. You will derive from successful trades based on our own judgment a singular pleasure and satisfaction. You will discover that profits made in this way are immensely more gratifying than any which could possibly come from the tips or guidance of someone else. If you make your own discovery, trade your own way, exercise patience, watch for the danger signals, you will develop a proper trend in thinking.”

    Page 55
    “Few people ever make money by trading on the occasional tips or recommendations of others. Many beg for information and then don’t know how to use it.”

  29. Josh commented on Nov 15

    “Why don’t you grow a pair of balls and start thinking for yourself?”

    I love it!

  30. ari5000 commented on Nov 15

    Barry — if you get a chance — look at a 3 YEAR – WEEKLY chart of the Nasdaq.

    Does anyone else see what I see — in 2004

    The QQQQs rallied in August to Dec. They ran 8 points — consolidated — then dropped.

    2006 – -QQQQs started a rally in Aug. Currently — it’s up exactly 8 points. The slope of the upward trend is almost identical. This rally has not only happened before — it happened just two years ago.

  31. Bob A commented on Nov 15

    Feels a lot like fall of ’99 to me and it kept running all the way till March 2000.

  32. JoshK commented on Nov 15

    This seems a bit flaky, usually people would cover this in bigs in the pit. I get a feed from the pit and didn’t see much from any one player then.

  33. GS commented on Nov 15

    JoshK:

    The full size pit traded SP futures have been marginalized since at least 2003, and maybe even 2002. I would have to go back and check volume against the eMini SP to find out when it took over as the most liquid market for stock index futures in the world.

    The eMini SP equals 1/5 the value of the pit contract.

    Yesterday’s December contract volume:
    eMini SP = 1,487,734
    pit SP = 36,792

    Dividing the eMini volume by 5 equals 297,546 equivalent pit SP contracts traded.

    In other words, eMini SP volume was 8.087x more than the pit SP.

    The bottom line is 88.9956% of ALL Dec. SP futures volume was in the eMini yesterday. That is where the liquidity is and has been since at least 2003.

    By the way, the max single order size for the eMini is 1500 contracts. The max overnight position size limit is 100,000 contracts per account and any affiliated accounts.

    To get over 100,000 contracts traded would require putting in 67 separate orders of 1500 contracts each. But with the right software setup one could do it all with one click of the mouse as a limit order with auto price chase feature.

    Long Live Volatility and Volume!

  34. DavidB commented on Nov 16

    Re: Buffett

    Orgies tend to be wildest toward the end.

    Now how the heck would he know that?

    I guess Omaha isn’t quite so sleepy after all!

    (:

  35. paolo commented on Nov 16

    What I cannot figure out, besides technical analysis, is why this market is running based on future lower interest rates without taking into account that a slowdown of the economy will bring also lower corporate profits.

    The market has now developed a negative MACD divergence, but only if prices return quickly below 1393 we can assess this last move as a bull trap. Difficult to say and most of all difficult and risky to bet on it.

  36. Mark Thompson commented on Nov 9

    Does anybody have any feedback on the emini mentorship program at emini? I was thinking about trying it but its $3K so I thought I’d ask here first.

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