Eurodollar open interest vs. S&P 500

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I dusted this chart off last night and sent it to a bud so figure I'll put it up here as well although I'll note that it was grabbed late last year so isn't perfectly up to date.  

 

The financial industry boom/bust of the 2000s was quite amazing and will be tough to match again in my lifetime.  Above is a chart which really illustrates the rise then fall of the era's expansion with the top half being the weekly S&P 500 price and the bottom chart showing open interest on eurodollar short term interest rate futures (LIBOR).  Before putting the two figures side by side, I was aware of a correlation between the equity market and the financing market but was surprised it was this precise.  

SocGen rogue trader blowout

The January 2008 unwind of Jerome Kerviel's trades at Societe Generale created a tremendous amount of market chaos into a largely illiquid market because of the American holiday on which the unwind began.  With the American markets expecting slow trading during Dr. Martin Luther King Day, it was quite a shock for European equity markets to have opened lower and not be able to find a bottom throughout the session on no headline news or explanation. 

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The first chart is the one minute EuroStoxx 50 futures on January 21, 2008 which shows the consistency of decline during the European session.  

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The above five minute chart of the H08 emini S&P 500 futures really shows how sever the decline was for the US index, likely because so many were caught buying a small dip in quiet holiday trading which soon became a one way bloodbath.  On Sunday night going into the holiday the S&P futures opened at the 1330 level and slid 1% into the European open before eventually trading to just above limit down a reaching a low of 1256.25 midway through the European session, a slide of over 5% on no news.  Once the market reopened in the afternoon, there was some stabalization early but a fearful mood reemerged as the emini S&P trading limit down for about two hours as Europe opened.  

Although the market at large was left wondering what was causing the freefall, the Federal Reserve had knowledge of the situation and took the extreme step of an intermeeting rate cut by slashing the Fed Funds rate by 0.75% on the morning of January 22nd and then cut it a further 0.50% the following week on January 30th to a rate of 3.00%. 

To put a human face on the pain this move caused, a videoblogger recorded a personal meltdown during the midst of the January 20-21st trading sessions.
(embedding isn't working but here is the link: http://youtu.be/vIMwMsY0ndo so just click on that for it) 

Ultimately however, both moves in interest rates and equity index futures were in line with the trend which would culminate in disastrous late year volatility for all markets.

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Above is the daily chart of the H08 emini S&P for a bigger picture view.

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And also a daily chart of H08 eurodollar interest rate futures to illustrate the rate moves on the short end.

Flash Crash

The "Flash Crash" really was scary for anyone who traded through it and in a way reminded all market participants of the fury which can occasionally be unleashed so swiftly and severely. 

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The above is a 1 minute chart of the emini S&P 500 during the day of the flash crash.  As can be seen, a lot of volume chased the market down resulting in a crescendo where the low point also experienced the highest volume before turning around and retracing most of the move rather quickly.  

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The emini Nasdaq also shows an identical move of a high volume peak as the market found bottom before screaming up.  

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Front month eurodollars had a similar move which tracked equities as often is the case during market panics and the contract had a 15bps fall in a matter of minutes.  Something was definitely weird about the day and I can remember getting as hedged as possible right before the spike down which really saved me that day.  From what I recall, the order book was ultra thin and selling an offer was impossible before the freefall and that's as sure as sign on what direction the market is going. 

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On the flipside, the eurodollar contract a year further had a flight to safety spike which virtually mirrored the front month's move. 

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Which resulted in the M10/M11 eurodollar spread to move from 75 before the move to as low as 42.5 with the vast majority of that happening in a few minutes.  Another chart which hurts to look at just thinking about how painful it'd be to sit unhedged on. 

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Or course there is no greater flight to safety than long term US treasuries and above is the 30yr.

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Crude surprisingly wasn't as correlated to panic as other markets but nonetheless had a severe move in it's own right.

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And for the hell of it here's the euro currency chart which like crude panicked lower but not like equities.

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Same goes for gold, a move but easily stayed within the earlier day's range.