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Wednesday, May 12, 2021

Colonial Pipeline and the Indexes

As an indexer I hardly ever say trading is fun but today may be an exception. Rarely are markets faced with a very likely short-lived binary contained emergency.  Below are four exciting thinkorswim year-to-date chart screenshots for the micro Dow 30, S&P 500, Nasdaq 100, and Russell 2000 futures contracts. 

The Indexes


Fibs showing drawdown of the Dow 30.




Symbol MYMM21, Micro Dow Jones 30 Industrial Average June 2021 futures down* 25% from its intraday all-time high three days ago.

Fibs of the S&P500






Symbol MESM21, Micro S&P 500 June 2021 Index futures contract is down* about 25% from its all-time high three days ago.

Fibs of the Nasdaq 100





















Symbol MNQM21, Micro Nasdaq 100 Index June 2021 futures contract is down* about 60% from its all-time high ten days ago.

Fibs of the Russell 2000.




And, symbol M2KM21, Micro Russell 2000 June 2021 index futures contract is down* 50% from it all time high 43 days ago!

*Note: these are not absolute down moves, these are the drawdowns measured against the range of the yearly high minus the yearly low. In other words, these measure how much the market has given up its move for the year-to-date. 100% down would take the market back to its yearly low.

These four ARE the major "broad" indexes that all money managers have such a hard time trying to beat. The last three days, as do all large breaks, present a great opportunity for active managers to beat the indexes. But how significant IS this sharp market break?

While the Dow and S&P just take us back to the second week in April (that is how large the rally WAS) the much more volatile Nasdaq is now at levels seen as far back as the second week of January! Same with the Russell 2000 index. The January 2021 highs are about where these two indexes are trading as I write. Those who thought they missed the move, well, they didn't. 

Colonial Pipeline


What largely precipitated this break is the Colonial gasoline pipeline interruption. When I was an energy trader, we used to darkly opine that a three day blackout in electricity or gas supply would shut down a city or a state.  The headline pictures of today's gas lines throughout the east cost are tribute to that. But what is also true is that as quickly as this went sideways is how quickly this can go back up! 

The pipeline interruption may be very short lived. I mean HOW incompetent ARE the IT guys and managers at Colonial? Darkside itself made a conciliatory statement. The pipe can be back even before the weekend and, if so, my bet (and I'm not really a betting guy) is market breaks will be very short lived as well.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Please request to follow this blog by email to gdrahal@gmail.com.

© 2021 George Rahal.

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