Friday, 27th February: 13:00 P.M.
The S&P futures have been heading down all morning. Now it’s just above it’s November lows. It’s on a knife edge and everyone knows it. The dollar index is making new highs. World bond markets are rallying. The press is already running quotes from market analysts that claim a break below the November lows could result in a full blown crash scenario – a panic on the scale of 1929 or 1987. A drop of 20% is being touted by even the conservative.
And as usual, I am going against the trend. I'm heavily long.
It is, I find, somewhat ironic that I’ve been such a market bear and yet here I am, severely over extended on the long side.
My stop is just beneath the low.
The market is literally sitting on that level.
Everyone knows there are going to be a lot of stops beneath 739.
The locals are praying for a sharp spike down now so they can buy it up. I know this because I can hear them discussing it on the floor.
I’m hanging onto the last vestige of hope that this is not going to happen to me. That someone is going to step in and bid this up and that I’m not going to end up puking my position to my colleagues who are buying low.
The fact that my stop will get hit if I leave it where it is is inevitable but also unavoidable. I can’t afford to give up any more money to hold this – not when I have no idea how low we will go when price breaks.
Then at 13.20am, it happens. The tension snaps. The S&P hits 739 and drops 9 full handles instantly. I hear a sharp intake of breath on the floor. I’m one of the first filled at 738 – I thank heaven for small mercies.
A minute later the offers get hit and we reverse sharply. I can hear the other locals talking wildy and excitedly and yet there is no time to evaluate. Because I am also short European Government Bonds.
I’m short with two different brokers and my clearing house. All my positions have gone from considerable profit to an open loss since this mornings open and as the S&P breaks, Bunds run over half a point up the ladder.
And there doesn’t seem to be any light at the end of the tunnel. Now everyone is talking about the US GDP. -5.4% has been expected. Anything worse could be the death knell to the market that everyone seems to be waiting for.
As the sqwark says “10 seconds”, I'm praying for a better number. I don't even realise I'm holding my breath.
Bloomberg has it a second before. -6.2% flashes across the wires. Another gasp across the floor. The market blips to a new low then begins to reverse up.
Now the S&P is grinding higher but 739 should hold it. A colleague is over at my desk telling me to sell 739 as it upticks into it. He calls it free money. Support turned resistance. The next leg lower will surely come now. But he knows that's not how I play the game.
He goes back to his desk. I don't hear from him when a few minutes later we trade right back up through 739.
Now we’ve gone from bearish to bullish in minutes. The contrarians are out in full force just after I’ve lost my position. The bad news is out. The lows failed to hold. I’ve already heard two people on the floor suggest this is the bottom for the next few weeks.
But Bunds have gone parabolic. All I can see is one long green candle. I scroll frantically up on CQG to find the top. I’ve got a level at 125.55. It seems to be all that is standing in the way of the all time highs.
The market has already traded through it as I’m trying to contact one of my brokers to try and tell them to move my stop. But I can’t get through to them. What else can go wrong? I’m trying to calculate my potential loss by hand. I’ve got five positions all taken at different prices. I grab a pen and paper and try to work out my potential exposure. Every biro I grab fails to work. I'm wondering if I'm still solvent.
Then the next thing I know, the bunds are pulling back. I’m watching it reverse and thinking - this is just a pullback – no need to think the worst is over. But still we’re heading lower. Right back into support at 125.25. I’m thinking of covering right here. Throwing in the towel and maybe even going long but the reaction doesn’t appear to be stopping.
Hold your position, another local is telling me. It’s easy to say when you’re not doing you’re a*se in it. Why does everyone seem to take an interest in my positions? Everytime I'm in something, it seems to be the talk of the floor. Maybe it's because I don't trade very often. Yesterday everyone wanted to know where I sold Bunds. Now everyone wants to know if I am still short. They know as well as I do it's heading up. I feel like they're taking pleasure in it.
The S&P is grinding higher but not enough to stage this kind of a reaction in the bond market. The US 10 year has gone from session highs to session lows in no time at all.
F*ck it. I decide to double up and sell some more at 125.20. This is it now. I’m pretty much all in.
I go out for a cigarette. What will happen, will happen. Stops are in, I’m at the mercy of the market.
A few minutes later I come back in. There is one huge red hourly candle. Bunds have tanked another half point straight back down and I’m saved. Despite seeing a stop of almost forty handles on the S&P get taken, I’ve just made double what I’ve lost.
As the decline continues, I manage to reach my broker. I re-enter new stops and breath a sigh of relief as the European session draws to a close. I'm holding this over the weekend. We'll see what Monday brings.
-Tom