How to Turn $27 Million into $8 Billion

arrowSometimes USDJPY isn’t up to the task of levitating the “market” all by itself.  Take yesterday, for example.  It had already ramped as high as it could in order to convince muppets that, by maintaining ZIRP,  Yellen & Co. weren’t at all nervous about the recovery.  In fact, they are really, really confident that things are improving.

So, this morning, with USDJPY already pegged at the top of the speedometer, it was up to CL to do the ramping.  With the futures off 12 points, CL started climbing off the 45.25 floor at which it had been propped up overnight.

Between 8:25 and 9:00am, CL spiked nearly 3% — the equivalent of 60 points on the S&P500 or 500 on the Dow.  There was no news in the oil market, just a slight miss in initial claims and GDP.  It was enough to reduce the ES’ loss to about 7 points.2015-10-29  CL 1 1021Apparently, that was enough.  Because CL was allowed to settle back down over the next 30 minutes, until the “market” opened.  At that point, it was off to the races again — only 2% this time.

The effect was to limit SPX’s initial decline on the open: a drop of only 6 points to 2084.12.  From there, it bounced a bit, then resumed falling for the obvious target — a backtest of the .786 Fib it had topped the day before.  This drop was supported by CL, which had broken down below the trend line off the morning’s lows (yellow, dashed in the chart above.)

But, a funny thing happened when SPX reached 2084.14 — 2 pennies above the initial low.  CL suddenly reversed.  In fact, it reversed back through the broken red TL, back through the red TL, and all the way up to the highs of the day.

Naturally, SPX stopped falling, and bounced back to test the previous day’s highs.  It was the last 1-min candle that caught my attention. 2015-10-29 SPX 1 1021The 1-min bar at 10:10 spiked a sudden 1.07 points — the equivalent of .0512%.  It’s not all that much, but it nearly resulted in new highs for SPX.  And, in dollar terms, it represented a $8.7 billion increase in the market cap of the S&P 500.

I got to wondering, what was it that suddenly boosted the value of the S&P 500 by $8.7 billion?

The answer is in the CL chart above.  In that one, single minute at 10:10 AM, CL suddenly shot higher by 0.45.

Not to wear out the analogy, but that’s the equivalent of 20 SPX points or 170 Dow points.  That’s a pretty big move in one minute.  How was it accomplished?

At 10:10, the total volume of CL traded on NYMEX was 7,187 contracts.  If, say, 80% of that volume was in service of driving prices higher, that works out to about $27 million in margin. I’m probably being generous, as the 24X increase from 292 contracts traded at 8:29 was no doubt much more than was needed to overwhelm the “market” for CL.

Bottom line: for a $27 million (probably much less) investment, someone created $8.7 billion in “value” in the S&P 500.  Once the tide was turned, the game was much easier.

I just snapped a picture of time and sales for CL, and it’s startling how such minuscule volume can keep prices on the rise.

Screen Shot 2015-10-29 at 11.03.13 AMThese are 1-2 contracts trading at a time, typically adding up to 2-300 per minute during the day.

The next time one of the talking heads holds forth on investor confidence or some such rubbish, remember that it’s probably a lousy $10-20 million in USDJPY or crude futures that’s really responsible.


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