Karl Denninger at The Market Ticker has some interesting thoughts on Friday’s spike in the last few minutes of trading.  First, here’s his chart. Then some of Karl’s reasoning:

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Directly in front of the bell 1,000 contracts were bought – as near as I could tell at the market.

Each single point that was disadvantaged to the buyer by this execution cost him a cool quarter-million bucks, and on average, the “disadvantage” was likely around five full handles, meaning that the buyer of these contracts, if this was an “organic” order, willingly ate $1.25 million dollars.

I don’t believe for one second that is what happened.

There are only two possibilities that I can come up with, and both demand answers:

  1. “Someone” was forcibly liquidated out of a short position – a fairly big one.  1,000 S&P “big” contracts has a maintenance margin requirement of $22,500,000 – that’s not a small position, and each point, as noted, has a $250,000 move associated with it.  Who was it and why?
  2. “Someone” who didn’t give a damn if they lost a sizable amount of money intentionally wanted to shove the cash market up through the 200DMA, a critical technical level.  They were 1 minute late; they succeeded in doing so in the futures, but not the cash!

#2 makes for great conspiracy theories, but my money is on scenario #1 – someone got forcibly liquidated into the close, perhaps a big customer, perhaps a hedge fund, but someone.

Interesting…We are at the 200 day moving average and somebody gets forced out?… or, the option Karl is not fond of: “someone” didn’t give a flip what it cost to remove stop losses on shorts for some new upside potential. Karl reports he went a little short on the spike, but it’s anybody’s guess what next week holds…unless “someone” let’s us know…

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