18 April 2013

SP 500 Futures Daily Charts Intraday - Option Expiration Tomorrow

Here is a picture of where the June SP 500 futures stand on a daily chart.

They are obviously at key support.

As a reminder, tomorrow is an option expiration in US stocks.

I think the option market is something best left for professionals because of the mispricing of risk.

And that goes double for options on the Comex, and even the futures contracts there for that matter. 

As a reminder, the 25th will be a Comex option expiration in the precious metals.

There are not too many things of which I am sure.  But one thing I am certain of is that if the SP 500 futures market were subjected to a bear raid in which tens of thousands of contracts were dumped into a quiet, non-event-driven market, the exchange and its traders would be up in arms, and the regulators would be getting phone calls at home about it.

Unless, that is, enough trading houses and traders were in on it. And the regulators were obliged to look the other way out of professional courtesy. This happens more often than you might care to believe these days. It is reminiscent of the markets of the late 1920's.

This strategy of moving markets is well known, and goes by the moniker, the Dr. Evil strategy.  Click on the links and read more about it.

Citi Fined for Euro Bond Trades By British Regulator; Italy Indicts Citi Traders; Citi Haunted by Dr. Evil Trades in Europe; Citi Agrees to Pay 14m in Bond Scandal

It is how some marginally talented but especially well connected people beat the market, go to the best schools, and get piles of unaccountable wealth.   And the career minded go along to get along. The best market operations and control frauds are rarely investigated and always denied because they are inclusive enough, and well executed.

Unless of course a single party gets out of line and hurts some other 'major players' who complain about it.  And then there is a real investigation of sorts, like the London Whale, which is quickly smoothed over.

And this does not even begin to touch on the culture of the elite, the insider trading where favors and secrets are the currency of the well connected.  This has always been the case of course, but at times it becomes so bad that it leads to dysfunction in politics and in markets, and is corrosive to the society at large.  And it may go on until it gets so bad that there is an inescapable problem, and attempts to cover it up so that 'confidence' does not break. 

This becomes a vicious cycle, which is the opposite of the virtuous cycle.  It leads to stagnation and disorder.

Charts can only tell a part of the story.  If charting systems really 'worked' the people who had them would become so rich that you would never hear about them.  I have looked at all of them.  The only techniques that work at a high percentage are the ones that rely on asymmetric information flows, and the ability to act in the market with foreknowledge and the power of size. 

One needs to look at the market structure, the volumes, and who is buying and who is selling as best they can.  The lack of transparency is a great weakness in most market systems, and especially in markets that are also lightly regulated and tainted with insider dealing and technical trading gimmickry. 

Transparency is the disinfectant to fraud.  And that is why it is avoided at all costs.

And I still cannot quite understand why no one is talking about what has happened in silver.  It's the dog that doesn't bark.