In the October issue of Futures Alex Benjamin wrote about the “Liquidity mirage,” detailing how at certain points during a nearly 24-hour trading day, markets experience periods of illiquidity where a relatively small order can create a huge move because there are few orders on the other side.
This is apparently what happened in the Chicago Mercantile Exchange’s E-mini stock indexes traded on the Globex platform Sunday night, as the big and little S&P as well as the Russell 2000 and Nasdaq 100 stock indexes all experienced a significant upward spike around 5:30 p.m. CDT before quickly returning to their previous levels.
The E-mini S&P went from a low of 1375.75 at 5:26 p.m., based on a one-minute eSignal chart, to a high of 1398.00 at 5:27 a.m. before returning to 1377.50 by 5:31 p.m.
A spokesperson for the CME says the spike was the result of legitimate buying activity. She adds that the exchange did not bust any trades or initiate any trading halts because of the spike.
Alex Benjamin noted that once the big S&P traded at 1380.80, it triggered trades from automated systems creating a domino affect. Many traders no doubt received the painful message that an entry was executed, their stop was filled with significant slippage and the market was back to where it had traded five minutes before.
“This is purely a function of the moments within the 24-hour clock, where there are pockets of inactivity punctuated by sharp moves due to the lack of opposing orders. On the exchange floors, locals used to provide this liquidity. But in the electronic world their skills are sorely lacking, resulting in far greater movements than would normally have occurred without the advent of 24 hour trading,” Benjamin says.
SPIKE: One-minute chart for E-mini S&P 500 futures on Sunday Oct. 22.
