For XJO day traders I think James Gerrish may have explained why yesterday was such a sharp sell off despite strong leads. Algo bots following the mornings contract. All well above my head, I guess frequent option traders may understand.
JAMES GERRISH Market Matters / Shaw and Partners
about 2 hours ago
Since June, buying the local market as it was sold off towards the 5600 area has proven correct, but as we all know nothing lasts forever, we are very cautious this time. Yesterday’s savage 49-point / 0.9% sell-off had no obvious lead and was pretty unexpected on all, but the most bearish trading desks. The selling kicked in aggressively at 10 am as the stocks opened, with 3000-SPI futures contracts being sold in just 6-minutes, this equated to 17% of the entire day’s volume in this particular market.
We’ve mentioned this early aggressive selling of the SPI futures a number of times over recent weeks and today we thought was an opportune time to ensure subscribers understand the implications to our underlying stock market which we are all familiar.
- An SPI futures contracts value is calculated by the price multiplied by $25.
- Hence at yesterday’s 9.50am open of 5689 one SPI contract was worth $142,225 (5689 x $25).
- Subsequently when someone sells 3000 lots in a few minutes it’s the equivalent a portfolio of over $426m being dumped at market i.e. 3000 x 5689 x $25.
- Yesterday’s total daily turnover on the ASX200 was $3,925,221,650 hence this one quick order was ~11% of the days total turnover before we even consider the huge % of day trading etc. within this $3.925bn total.
The SPI very often leads the ASX200 as it’s a quick and efficient way to buy/sell the overall market. If the SPI falls too far compared to the underlying index, arbitrage kicks in and computers buy the SPI and sell stocks, hence realigning market efficiency.
Obviously, we have no way of knowing who the seller(s) are of the SPI over recent weeks, previously we speculated it was an overseas fund manager taking advantage of the local market's performance in $US with the $A trading close to the psychological 80c level. However, the exciting factor is SPI selling leads to overall market selling and hence opportunities can arise in quality stocks
(20min delay)