SP 500 Futures Overnight Lock Limit Down – Compare to Gold and Oil

Oct 24, 2008: 10:08 AM CST

For four hours this morning, the US Equity Index Futures markets went “lock limit down” after moving a predetermined move that automatically halts trading.  Let’s see that overnight move on the charts and then compare what happened in the Crude Oil and Gold Futures Markets as well.

S&P 500 “e-mini” Futures Contract:  15-minute overnight session:

It’s a stellar development – one that happened so quickly as price cascaded lower – along with overseas markets – after midnight and into the morning.  I circled the “lock-limit” session with an oval.

Unless you were awake at that time (many of us were not) then you may have woken up to a surprise – perhaps panicked surprise.  Nevertheless, at the moment, price is rallying sharply above that level, perhaps indicating an ‘overshoot’ in price ‘panic’ or some other factor.

One thing I wanted to make a special note – if you trade ultra-short time frames such as 5-minute charts – is to be careful in interpreting your classic indicators that hold data during this time period.  For example, if you’re using a 20 period EMA, it will take 20 bars to ‘shake off’ this ‘data void’ in your moving average.  Stochastic (14 bars), RSI (14 bars) MACD (default) all will experience some “indicator failure” as a result, so do be very, very careful taking cues or signals from this time.

Just look at the “3/10 Oscillator” (blue) in the chart above – it flatlined during this time and is having to factor out the data for at least 10 periods (it’s the difference in a 3 and 10 period SMA).  In fact, with the volatility so rampant, it’s probably best to focus your skills on the price itself, rather than blind allegiance to any one (or combination of) indicator.

Don’t assume that fundamental valuation – pricing – is based solely on fundamentals.  Emotion, program trading (hedging), panic, greed are all playing a major part in today’s – and everyday’s – pricing action.

Let’s compare the S&P 500 contract to that of Crude Oil (and then Gold).

Crude Oil 15-minute overnight session:

Crude Oil dipped $6.00 to trade ever so shortly beneath $63.00 per barrel – ask yourself if you ever thought that was possible after seeing oil near $150 per barrel not that long ago.  Though oil didn’t “lock limit down,” it did experience a sharp decline overnight that likely yanked any overnight long stops (if you were unlucky enough to be long) and gave swift profits to overnight (brave) holders of short positions.

Interestingly enough, notice the clear and present positive “three swing” momentum divergence that set-up as price made new lows into 6:00am.  Odds are crude will close higher than $63 or $64 today as a result.

What’s been strange for me to observe is the close – almost exact – correlation in Crude Oil prices and the S&P 500 (equity market) prices.  That pairing was evident overnight almost tick-by-tick.

Now, onto Gold, which you would think would be doing exceptionally well in potential ‘panic’ environments.

Gold (mini) – 15-minute overnight session:

Though gold bottomed ahead of the S&P and Crude at 4:00am, it still suffered a sharp and stunning $40 decline overnight from peak to bottom, which is now being recovered/retraced.

It’s so difficult an environment out there, but the cynic can say “Gosh, all this stuff is so easy… just sell EVERYTHING.”

If only it were that easy.


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Published by Corey Rosenbloom of Afraid to Trade.  Click to receive the Afraid to Trade Feed.

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Charts courtesy TradeStation.

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