The S&P 500 Futures and the Chinese Paper Tiger

Commentary, News, Our View, The Opening Print


The North Koreans test a nuclear bomb, continued weakness in China, the threat of higher interest rates, terror threats, and the S&P 500 that is under attack. The new year is supposed to bring in new buying, every day this year there has been a buy imbalances on the close. On Monday $2.5billion to $3bil was bought on the close, Tuesday $340 million was bought, and yesterday $700 million in stock was bought.

So why are the markets going down? The North Korean nuclear test spooked the markets, but the big thing is China and the Yuan, a mixed bag of economic reports in the US have all weighed on the S&P 500. Yesterday’s opening print call was to buy the sharply lower open, or the first drop after the open, and then sell the rally. We saw both the early low and the high and pointed them out as they were trading at their prices. Late in the day the S&P did exactly what it’s done for the last three days, sold off and then rallied as the MiM increased to the buy side. Based on the big uptick in volatility that started at the end of July we knew going into the end of the year and the beginning of the year that it was unlikely that the volatility would subside. Despite the negative overtones the uptick in volatility has been good for trading.

(Stock Exchange of Hong Kong Limited:HSI)

hang seng


Previous close




Day high


Day low



Average daily volume (3 months)


Average P/E


1 year change


Data as of 3:01am ET, 01/07/2016

The Hang Seng Index is down 14.14% year to date that equals two days of being locked ‘limit down’

Has China Pushed US Stocks into a Bear Market?

Over the last several years I have become an avid follower of the Asian markets. There was always something different about how they move versus the U.S. or European Markets. For the last few years I have watched in amazement at how the Shanghai Composite and Hang Seng went higher day after day, week after week, month after month, and year after year. I have seen a lot of big moves in the S&P but I’ve never seen the level of algorithmic and HFT trading like we saw going into the end of the year and the beginning of this year. It’s one thing to run the early buy stops and then run the sell stops, but to see that happen two or three times a day is not normal. Clearly these types of programs feed off higher volume and headline news which China has been supplying. Last night it only took 14 minutes before the China markets were halted. As I stated in the MrTopStep videos over the last couple of days, I don’t feel like putting my foot heavily into the Bears camp or the Bulls camp. I get the feeling that there are going to be failed selloff attempts and failed rally attempts, exactly like we saw last year, but the moves will be larger in size. This type of price action may continue all the way in and beyond the first quarter of 2016.

As futures traders we try to get in and get out, but when the markets are this volatile and moving this much, it’s imperative that you define your risk and use stops. These are the types of markets that when you’re wrong it’s best just to get out and start over. A few days ago someone on Twitter talked about adding to a losing position. I understand the idea of averaging up or down, but I also understand that when there are 30 to 50 handle range days, adding to losers can blow up an account in minutes. That is why we continue to think as a scalper, get in, get out, don’t fall in love with your position.

In Asia, 11 out of 11 markets closed sharply lower (Shanghai Comp -7.04%), and in Europe 12 out of 12 markets are trading sharply lower (DAX -3.49%). Today’s economic calendar includes the Weekly Bill Settlement, 52-Week Bill Settlement, Chain Store Sales, Challenger Job-Cut Report, Jobless Claims, Gallup Good Jobs Rate, Jeffrey Lacker Speaks, Bloomberg Consumer Comfort Index, EIA Natural Gas Report, 3-Month Bill Announcement, 6-Month Bill Announcement, 3-Yr Note Announcement, 10-Yr Note Announcement, 30-Yr Bond Announcement, Charles Evans Speaks, Fed Balance Sheet Money Supply.

ESH16 1931 Globex Low

Our View: I think we’re in for another busy day of big ups and big downs. I am going to start to look for the PitBulls Thursday / Friday low the week before the Jan options expiration, but I am worried there could be more weakness going into Friday. We need to see the ESH back above 1975 to get any upside traction and right now that may be tough to do. Here is a link to the January expiration study, it shows Monday down and Tuesday up… pretty much fits the pattern we have been seeing. Our view is to buy the early weakness and sell rallies. I just don’t get the feeling this sell off is over yet.

As always, please use protective buy and sell stops when trading futures and options.  


Sign Up Now, Space Is Limited!!!

Hirsch Webinar


    • In Asia 11 out of 11 markets closed lower : Shanghai Comp -7.04%, Hang Seng -3.09%, Nikkei -2.33%
    • In Europe 12 of 12 markets are trading sharply lower : CAC -2.71%, DAX -3.49%, FTSE -2.62% at 5:00am CT
    • Fair Value: S&P -7.78, NASDAQ -,8.88 Dow -93.40
    • Total Volume: 2.2mil ESH and 7.3k SPH
Follow MrTopStep in our Social Space:

Danny Riley (1940 Posts)

Danny Riley has worked in the futures and options industry for 38 years, including the CBOT’s bond room, where he worked for several of the Market Wizards. He went on to build the largest volume desk in the S&P 500 Index Futures, serving some of the largest banks and hedge funds, the UBS program trading business, and some of the world's top individual traders. As a leader and co-creator of the MrTopStep IM-Pro Trading Room, he shares trading ideas and breaking market news live from the floor with our other professional traders and new traders eager to experience the power of collective intelligence. Join us today and get the edge only social trading can give you.

Leave a Reply