I mentioned to my readers that the first few days of this week could get bumpy in the equity markets. So, seeing them come back from the Holiday weekend and send the DOW down 277 points in the first hour, that prediction was on its way to coming true.
I mentioned to my readers that the first few days of this week could get bumpy in the equity markets. So, seeing them come back from the Holiday weekend and send the DOW down 277 points in the first hour, that prediction was on its way to coming true.
But why? Roll out dates. What are they? I’ll try and keep it basic. If you are a market participant in the CME’s futures arena, you can roll forward from the present “front month” to the upcoming new “front month”
So, all the hedge funds and investment houses that trade the S&P quarterly futures contracts, are all trading the “front month” and have to do something with them as they come up on expiration. Since we’re talking quarterly’s, that means the third Friday of March, June, September and December.
Well the third Friday of this month is the 17th. So, the bulk of all futures trading on the S&P has been September, which is the front month. Once the 17th ends, the “new” front month will be December. So, they’ll be trading the December quarterly futures at that point.
A roll over is when you close out your current Front month position and then simultaneously reestablishes the same position, but for the new front month. Let me quote something from the CME itself:
CME Group Equity Index futures allow market participants to roll their futures positions from one quarterly futures contract month to the next at any time they choose. For example, participants can roll their futures positions from June to September at any time.
However, the trading floor convention is to roll the expiring quarterly futures contract month eight calendar days before the contract expires*. This is known as the roll date.
Did you catch that little wink and nod? “trading floor convention” is that they do the roll 8 days ahead of the expiration, which is this case is Sept. 9th. In other words, there’s no rule that says you can’t sell them on Tuesday the 7th, Or Friday the 10th, or next Thursday morning.
Often when we come up on roll out dates, nothing happens in market land. But sometimes something does happen. With no “absolute” rule about rolling out 8 days ahead of the expiration, they can do it any time they like.
This year, roll outs were on March 11th and June 10th. What happened to the S&P? In March, the roll date came and the S&P continued higher for 2 more days. Then it rolled downhill for the next 6. In June, we saw the same show, the roll date came, the market moved up for 2 more days, and the rolled over and puked for 6 more.
My point behind all this, is simple. Generally from about two days ahead of the roll date, right until the actual expiration, “anything” can happen. If a huge fundie decides to liquidate his current front month contract, but doesn’t instantly roll out to the next front month, that’s the type of action that can cause the S&P to fall 30 points out of the blue, only to have it recover 35 points the next day as that Whale comes back in.
Nothing about the market is ever etched in stone. But keeping an eye on the 10 days before the S&P quarterly expirations are to hit, is a good idea. They can get pretty lumpy.
I mentioned last week that “if” they were going to allow even a slight market correction, September would be their best chance to make it happen. I think that with the current state of the employment situation, Powell got his “get out of jail” card on not having to announce any tapering, and the market will probably rejoice that right up into the year end.
So the next 8 days could do darned near anything, and then I’d suspect we start inching higher again. Yes we’re in a bubble, yes it’s overblown. But the bubble blower has changed NOTHING and won’t even discuss hiking rates. The odds say that despite the most overblown market in history…it’s probably going to bet “overblowner” and that’s not even a word. Good luck.