In a report published Wednesday, analysts at JPMorgan discussed the sell-off in S&P 500 futures on Tuesday night and offered four potential explanations.
About 2.5 billion futures traded in a 15-minute period on Tuesday with several stop-loss orders placed around 2048.5-2050 that were triggered and 6,000 minis went through – essentially at the market, dragging the futures even lower.
Here are the four theories the analysts discussed.
1. An allocation out of Japan (as evidenced by heavy selling in Japan ETFs) possibly into Europe suggested a large-scale domestic redemption and caused the Nikkei to move lower. This could have "scared the markets" and dragged the U.S. futures lower.
See Also: S&P 500 Index Futures Making Fools Out Of Longs And Shorts
2. The New York Times suggested the United Nations is concerned a collapse in Yemen may be imminent. The news report was released shortly before the move in the future. However, the analysts suggested that "there is no chance this is correct" but it is a working assumption for other market participants.
3. Greece and Iran headlines is a common "default" excuse when the market moves lower with the move seen on Tuesday no exception. Likewise, the analysts aren't buying this theory as headline stories were not large and significant enough to justify a sharp move lower.
4. A "fat finger" trade may be a possible explication as a trader may have intended to sell 1,000 minis but accidentally sold 10,000 minis. The analysts note that this has happened before and a theory worth considering as the main catalyst.
The SPDR S&P 500 ETF Trust (NYSE: SPY) traded recently at $205.86, down 0.3 percent.
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