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S&P Futures Flash Crash Overnight

Quadruple witching and the fiscal cliff fiasco might be behind a 50-point drop in futures ... or it might be something more sinister


Video Transcript

I wanted to quickly review some crazy, wild stuff that’s been happening. But I don’t think we’re going to know how this is going to play out short term by the close today.

No. 1, we have quadruple witching expiration (a day on which contracts for stock index futures, stock index options, stock options and single stock futures all expire), and from Thursday afternoon when S&P 500 futures were in the 1440 area, it took approximately five minutes to have a 50-handle drop after what everyone is calling the ‘Plan B’. When that news finally broke, S&P futures ended up dropping from the 1440 area all the way down to around 1390 or so, creating a 50-point drop in S&P 500 futures.

It would be similar to a $5 drop in the S&P 500 ETF (NYSE:SPY). Let’s say this happened during market hours. Let’s do a hypothetical and say they were trading at $145, and let’s say this news came out at 11 a.m. ET, and we had a 50-point down move in S&P 500 futures. What would be equivalent to that is SPY dropping from $145 to $140 in a matter of minutes because that’s what happened in futures.

But because this happened in overnight trading, there are things like circuit breakers and ‘lock limit down’ and things of that nature. So, as soon as futures dropped – I don’t want to use the word halted – but in overnight trading, after we’ve had so many crashes, things can only move so much before you can’t trade it anymore. That’s what you call lock limit down. We went lock limit down in a matter of minutes.

Now S&P 500 futures have retraced and bounced, and we’re about halfway up from the sell off  from the highs to the lows. Long story short because we’re not going to be able to see in the charts, other than the fact that everybody knows we’re in a big rising wedge in almost every index, and we broke south out of the wedge, retested it, dropped, retested it again, and dropped again. And then futures plummeted and are right back to the middle part as I show you on the chart in the video.

It’s probably in a trader’s best interest for, right now, to see where everything settles.

I’ll be keeping a close on eye on this development.

InvestorPlace advisor John Lansing tracks the charts all day and offers expert technical analysis in his day trading, options and trading services: Power Trading at the Open, Parabolic Options and Trending123.  For more information on which service is for you click here.

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