Gains Survive Late Fade

In an environment in which bad news is often ignored, a little good news can go a long way. Such was the case Monday as a smattering of mainly unrelated developments helped send major averages sharply higher. However, the day's gains were markedly tempered in the final hour of trading.

After trading as high as 9278.41, the Dow Jones Industrial Average closed up 0.6% to 9177.15. The S&P 500 climbed 0.6% to 1003.86 vs. its intraday best of 1015.41, while the Nasdaq Composite rose 1.2% to 1754.84 after trading as high as 1776.10.

The final-hour fade was apparently precipitated by an erroneous trade of S&P 500 E-mini futures. Late Monday, the Chicago Mercantile Exchange canceled all trades in the September E-Mini S&P contract below 996.00.

"At 3:08 p.m. EDT, a price drop occurred in E-mini S&P futures that lasted four seconds, and [sent E-mini prices] from 1000 to 990.50," according to Maryellen Theilen, a spokeswoman for the MERC. "The drop was triggered by a series of cascading stop orders during relatively thin market activity."

E-Mini Me

The MERC dictates there can be no more than a 600-basis-point differential between the E-mini and pit-traded contracts; at the point when the exchange decided to intervene, the pit-traded futures had traded as low as 1002, she said. Thus the decision was made to cancel all E-mini trades below 996. (The pit-traded futures settled at 1002.60 after having traded as high as 1014.80 intraday.)

The spokeswoman stressed "the situation was not triggered by an error," although rumors to the contrary abounded.

Brad Sullivan, founder of Group 6 Trading in Chicago, noted 250 contracts is the largest single E-mini trade allowed by the MERC. But "you can place multiple 250 E-mini trades," he said, speculating there may indeed have been an error -- something as simple as a trader not thinking an order was filled and then repeatedly clicking his/her computer mouse, ultimately submitting an unintended string of orders, which then triggered reaction from other traders.