One thing to be wary of: "air pockets" on summer days. We saw it this morning. Just before 11 a.m. ET, the S&P 500 dropped 6 points in about a minute. Predictably, I got the usual "What happened?" messages.
The answer is not much. There appears to have been a sell program that came through involving S&P E-Mini futures contracts (there was talk it involved $3 billion to $4 billion), but there was no macro event around it.
In other words, somebody sold futures contracts into a very thinly traded market, and the markets dropped.
How thin is trading? On a normal day, the S&P 500 ETF would trade 120 million shares. Yesterday, it traded 55 million — less than half of the normal volume!
On a normal day, the market will trade roughly $300 billion to $400 billion in stock, so the sale of $3 billion in E-Mini contracts, even over a short period, would not be an enormous amount.
But with volumes this light, any dumping of stock is a guaranteed market dropper.
When you sell stock with no obvious event around it, the market will usually begin to recover, and that is exactly what happened. Within an hour, the S&P was back to where it was before the drop, and has since been meandering in a narrow range.