On Days Like This, Traders Lose Big

As August trading comes to a close, stock markets are breaking records, as we saw when the S&P 500 hit 2000 earlier this week. At the same time, volumes are at record lows. Most of the low volume is tied to families in the U.S., Europe, Japan and China taking summer holidays. However, there is a second factor: the stock market’s refusal to pull back means fewer buying opportunities for investors.

As expected, yesterday’s trade was lackluster. For several days I have been warning everyone that the final trading days of August would be extremely slow, but the markets have exceeded our expectations. Clearly, traders have pulled back from trading, and we do not think things will pick up until the middle of September. While we have grown accustomed to the low volume of the S&P futures, we cannot remember them ever being this low. When you take the 115,000 Emini S&P 500 contracts (ESU14:CME) traded in Globex out of yesterday’s 765K there were only 650,000 contracts traded in the day session. When volumes are this low it makes it hard for the algorithmic and program arbitrage to get trades off. Pre-electronic trading, many S&P pit traders liked the slow chop because it was easy to trade, but with pit volumes almost nonexistent many pit traders find themselves trading with each other. 

If you think Wednesday was slow, just wait for today and Friday. Or better yet, take the day off. 

Today’s economic schedule includes GDP, jobless claims, corporate profits, EIA natural gas report, Kansas City Fed Manufacturing Index, farm prices, Fed balance sheet, money supply, several Treasury announcements and auctions, and earnings from Abercrombie & Fitch Company (NYSE:ANF), Dollar General Corporation (NYSE:DG), Coty Inc. (NYSE:COTY), Signet Jewelers Limited (NYSE:SIG) and Avago Technologies Limited (NASDAQ:AVGO).

Our view:  We really think it’s time to pull back from trading. What happens is traders get bored and then they make mistakes. I am the last guy to tell people not to trade, but I really think the risk vs. the reward is not worth it. Sure, you can make a few ticks, but we have people lose a ton of money messing around on days like these.

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