Today the market is searching for direction after a serious setback in the strong move that we have seen in the last two weeks. The depth of market is surprisingly lacking supportive bids and activity is muted. As we were dropping yesterday there were hundreds of bids stacked up from 101.50 on down but what was not evident were the thousands of stops that pushed the market to the 97.90 low. There are several theories that have been attributed to yesterday’s sharp drop, including origin selling or selling orchestrated by funds. I’m not saying that these theories are not valid but, as pointed out early in the day, there were other signs of fragility. To deny that a delta bubble was created in the last week or so is a mistake imo. 110,716 calls traded during this last unreported COT period and 60,758 puts, accompanied by an inflating implied volatility. In addition to option related pressure, the market seemed stuck early in the day, it could not hold any upside moves. There was some origin selling, if measured only by forward activity, not so great to cause what we experienced. There are many shorts in the market but with them there are longs as well. We see in the OI every day the liquidation that is taking place on both sides. It’s very likely that funds will continue to cover. They began buying quite a bit lower from current levels. I’d like to think that the market has corrected and will resume its upward trend even though any strength is purely motivated by covering by funds, a cold winter and a timidly steady Real and nothing else.
Currencies are mostly higher against the $. EMs are also higher except for the Yuan. The Mex Peso is also lower as USDMXN is 19.7168 +0.1428 (+0.73%). USDCOP is unchanged at this early hour at 3303.50 and USDBRL which is early as well is 3.8807 -0.0001 (-0.0026%). The CME shows a lower value in the USDBRL.
Bond futures continue climbing followed by all the metals and equities. Oil and sugar are higher while cotton and cocoa are lower.
Yesterday’s volume was 129,386 lots. 61% of the 63,205 lots in July, or 37,130 lots consisted of outright trading. The arb is 33.64.