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Posted on 22 April 2011 | 4,685 views

April 2011 Standard and Poors 500 Stock Futures Jump to October 1987 Pre Crash Levels

One of the biggest surges of overnight demand for Standard & Poor’s 500 stock futures before Wednesday’s April 20, 2011 session is unnerving some investors puzzled by the sudden leap. The difference between the price of the last S&P 500 future traded on Tuesday evening and its opening price on Wednesday morning was the second biggest ever for a Wednesday following a Friday when options expired.

That might sound obscure, but the Wednesday following a Friday when many options expire worthlessly is typically followed by a lackluster week or subdued selling. Wednesday’s huge jump up in “S&P 500 Futures” — seen as a leading indicator of the broader market — isn’t making sense to some and traders seem to be engaged in panicky buying.

Big gaps between a closing price and the next morning’s open are created by overnight futures trading and orders put in before the stock market opens in New York at 9:30 a.m. EDT. The E-Mini S&P 500 contract settled in Chicago at $1308.60 on Tuesday night and opened Wednesday morning at $1324.25.

The size of Wednesday’s “Gap Up” — as it is called by traders, is particularly unusual because there is no fundamental explanation for the size of the climb. The stock market rose Wednesday, as technology stocks soared after better-than-expected earnings reports were released late Tuesday from blue-chip companies including Intel (Stock Symbol: INTC) and International Business Machines (Stock Symbol: IBM) but that is a slender reason for an overnight move of this magnitude.

Among Wednesday’s April 20, 2011 S&P 500 gap-up following Friday’s options expirations, today’s opening jump was second only to the gap up from Wednesday October 21, 1987 — two days after the stock market’s “Black Monday” crash.

The largest gap up in history was two days after the biggest crash in history, so you would say, “OK, the market crashed on Monday, it’s coming back up today” — gaps between an opening price and the previous day’s close aren’t quite as meaningful these days, now that futures are traded around the clock. Still, the size of Wednesday’s gap was unusual.

S&P 500 futures have managed to close above key support at the 1298 level recently, and that — coupled with the fact of mild improvement on the earnings picture chased a lot of the short-sellers out of the market. While many agreed the move heading into Wednesday’s open was unusually large, not all were surprised by its occurrence.

The gap made sense in the context of positive earnings surprises coming after Monday’s rout. The stock market sank Monday after the S&P cut its outlook on U.S. government debt. We had some big earnings that beat the Street, foreign stocks went up, the dollar keeps falling and people rushed in and bought.

The technology companies’ earnings reports may have also surprised investors who had been bracing for a decline in global shipments of personal computers, following a report last week from industry researcher Gartner. These earnings numbers caught the market leaning completely the wrong way — Intel had also announced a hiccup in production earlier in the first quarter. After Intel’s results came out, it caused a pretty dramatic repositioning in the trade — that’s what led to the volatility.

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