Then And Now...

I remember being at my S&P desk in late November 2006 when a trader that I worked with at UBS said something about subprime mortgage borrowers were falling behind on payments at a record pace. Then Ownit Mortgage Solutions shut down, laying off approximately 800 employees as mortgage funding dried up and then Ownit filed for bankruptcy protection, an early sign of serious financial stress.This was ground zero.

I don’t know why I didn’t put two and two together until early 2007 when the PitBull told me there was 'rotten wood' floating around in the market leading sectors, the banks and brokerage stocks. I remember having two conversations together with a few big customers at the desk and what I had heard from most of them was Moore Capital, a $22 billion hedge fund. I don’t think its just in trading that you see things before they happen but I also had a very good friend in the 10yt note options by the name of Terry Sullivan who did the Country Wide business and he was a great source of information. Anyways, in early February, HSBC unexpectedly disclosed large U.S. mortgage losses, and New Century Financial reported problems with defaulting subprime loans. Like I said, there is something you can just feel and it looked like there was a domino effect going on and I remember this headline from Reuters: Is subprime the first shoe to drop?, explicitly raising the possibility of a broader credit crunch.The next shoe to drop was on my bithday, April 2 , 2007, when New Century Financial, one of America's largest subprime lenders, filed for bankruptcy and then in June, Bear Stearns halted investor withdrawals from two hedge funds heavily exposed to mortgage-related securities.

In late August of 2007, mortgage-related losses escalated into a broader funding and liquidity crisis and then the news that Lehman Brothers had $3 billion in off book losses and on September 15, 2008, Lehman Brothers filed for bankruptcy, dramatically intensifying the global financial crisis and went out of business and Bear Stearns effectively collapsed on March 16, 2008, when JPMorgan Chase agreed to acquire the investment bank in an emergency rescue backed by the Federal Reserve. But before both companies closed, the Bear Sterns desk run by Mark Metzger t(hat was 15 feet to the left of my desk) was closed and Lehman’s desk (right above my booth) were both gone.

The damage was more widespread, two of the desk's largest accounts were AIG and Bank of America.

When the Walls Come Tumbling Down

AIG | THE 2008 CREDIT CRISIS

AIG nearly collapsed during the 2008 financial crisis after suffering enormous losses tied to subprime mortgages, mortgage-backed securities, and credit default swaps. As the housing market crashed, AIG faced billions in losses and collateral demands it could not meet. On September 16, 2008, just one day after Lehman Brothers filed for bankruptcy, the Federal Reserve stepped in with an emergency $85 billion rescue. Total government commitments eventually reached *$182.3 billion*, while AIG reported a staggering *$99.3 billion net loss in 2008*. AIG survived, repaid its government assistance, and the rescue ultimately generated a *$22.7 billion positive return* for taxpayers.

BANK OF AMERICA | THE 2008 CREDIT CRISIS

Bank of America survived the 2008 financial crisis but suffered significant financial damage after acquiring Countrywide Financial and Merrill Lynch. Countrywide brought billions in troubled mortgages, while Merrill Lynch reported a *$15.5 billion loss in the fourth quarter of 2008*. As the credit crisis intensified, Bank of America received *$45 billion in TARP capital*, and the government proposed guaranteeing a portfolio of approximately *$118 billion in troubled assets*, although that guarantee was never finalized. Bank of America's net loan charge-offs surged to *$16.23 billion in 2008*, but the bank avoided bankruptcy and repaid its entire $45 billion TARP investment in December 2009. I always said Wall Street had a big party and that the public paid for it. Other than the 2010 Flash Crash, the credit crisis was one of the most difficult periods for my S&P desk on the CME floor. Imagine working with people for 15 or 20 years every day, every day picking up the phone, shooting the shit, taking market orders from them, going to weddings, knowing the families and then liquidating their books and being unsure if they were going to get severance pay or get a new job.

My largest desk account was Raj from Bank of America and someone I became very close friends with. His book was up over $600 million, and I remember when he called me on his cell phone and told me he was not going to Merrill Lynch. I believe there are turning points in everyone's life, and that was one: Raj decided he was not going to be a trader at a broken-down shitty prop desk.

I have worked my whole life to do the right thing, and Raj was a great example of that, even in the worst of times. Are we in the same predicament now as we were in 2007? I don’t know for sure, but what I can say is, as debt piles up and the higher rates go, the more problems the banks will have. It's simple math: banks bought billions in bonds yielding just 2%–3% when rates were low. As rates surged, bond values plunged while deposit costs increased, squeezing profits. Bank of America's reported unrealized bond losses exceeding $100 billion highlight the risk. If banks are forced to sell these bonds to raise cash, paper losses become real losses. The bigger concern for Wall Street is that a liquidity squeeze could trigger tighter lending, renewed pressure on bank stocks, and broader selling in the S&P 500. We've seen how quickly a banking problem can turn into a market-wide credit crisis.

There is always another side to the coin flip, and despite saying I wanted to sell the rallies yesterday, it's like I have always said: you get to change your mind when trading the ES and NQ futures, and at the low of the day, I put this out in the MTS chat:

Thursday’s ES session started on the defensive. Globex opened at 7768.25, slipped to 7728.75, and handed the cash session a 7735.75 opening price. Sellers pressed the market to 7717.25 during the 9:55 a.m. ET bar, but that early break became the day’s turning point. Buyers recovered the first hour’s high and worked steadily back through the 7760s and 7770s.

The rebound extended into the afternoon, with ES reaching 7801.75 during the 3:20 p.m. bar. At 3:50 it stood at 7788.75. The closing auction sequence saw the initial MIM sell reveal fade and ultimately turn modestly to buy, while the regular session finished at 7790.75, up 55 points from its open. Official settlement was 7791.00, a 20.75-point gain from Wednesday’s settlement.

The recovery held most of its ground through cleanup, although ES backed down to a 7786.00 last price at 5:00 p.m. Official cleared volume totaled 2.06 million contracts. NQ also climbed sharply off its morning low: it traded down to 29622.50, recovered to 30196.75, and finished regular trade at 30140.50. Its 30143.75 settlement was still 39 points below Wednesday’s, showing that the tech rebound repaired plenty of intraday damage without erasing the entire prior-session loss.

A $3.6 Billion Sell Reveal Fades Into a Buy Close

Thursday’s 3:51 p.m. ET reveal showed $3.6 billion to sell across all markets. Sell dollars outweighed buys by 71% to 29%, while 55% of participating symbols leaned to the sell side. That gap mattered: the pressure was heavier in dollars than in the number of names, pointing to concentrated selling rather than every stock being offered together.

The sell imbalance then unwound quickly. It eased to $2.7 billion at 3:52 and $2.2 billion at 3:53, shrank to $315 million at 3:54, and flipped to roughly $1.5 billion to buy at 3:55. The next three readings were close to balanced before buying rebuilt to $237 million at 3:59 and $341 million at 4:00. The final snapshot carried $1.33 billion in buys against $987 million in sells, with 57% of dollars and 52% of symbols leaning buy.

At the reveal, technology supplied the biggest sector drag, nearly $2.0 billion net to sell. Communication services and financials were also offered. MSFT and AAPL topped the individual sell list at about $432 million and $395 million, followed by NVDA near $251 million. MDT and PG led the buy list at approximately $246 million and $129 million. Energy and real estate were the positive sector exceptions.

The initial sell pressure did not hold into the closing auction. The late buying was modest beside the opening sell reveal, but the reversal left a much less defensive finish. Sector and stock rankings shown below belong to the reveal snapshot; the Nasdaq summary still carries the dashboard’s pending label.

How the NYSE and Nasdaq auctions work

How to read the MIM

Rich Handelstats — Friday, October 16 at 9:15 a.m. ET

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Polaris Trading Group

Polaris Trading Group’s Thursday session centered on repair. David entered the day treating it as Cycle Day 2: after the prior selloff, the expectation was consolidation that could mend damaged structure. The morning did not begin with a promise of a straight-line rally. The room watched the opening range, worked long setups, and then shifted its attention to upside objectives as buyers gained control. Later posts confirmed progress toward those targets and also identified a reversal risk as the rally approached its expected range.

The starting thesis

• David’s premarket framework called for normal Cycle Day 2 consolidation to help repair the previous day’s selling damage. That was the organizing idea for the session, rather than an assumption that Wednesday’s weakness would continue indefinitely.

• The overnight recap said the 7,730 lower target had been fulfilled. Another upper-target number in that post was incomplete, so it is not repeated here as a usable reference.

The opening range

• The room established an opening range of 7,726–7,740. David described the first 15 minutes as following normal Cycle Day 2 rhythms.

• That range gave the room a defined early framework. A move outside it still needed to be judged in the context of the repair thesis and the developing session, rather than treated as an automatic trade.

Long setups develop

• Morning posts identified a D-Level long play, followed by a BLT long play and a note to scale the D-Level trade at the PL reference.

• The written record names those setups but does not provide a complete sequence of entries, stops and exits. It supports describing the opportunities discussed, not assigning a reconstructed profit figure or assuming every member took the same trade.

Repair gains traction

• Later in the morning, David reported that the 7,785 target from the DTS Briefing had been fulfilled. That follow-up was evidence that the repair idea had produced progress beyond the initial opening range.

• Into the afternoon, his commentary continued to describe buyers as solidly in control. The room’s emphasis moved from whether repair could start to how far the developing advance might carry.

The afternoon roadmap

• The afternoon bull case required acceptance above 7,770, plus or minus five points. The stated upside objectives were 7,785, 7,795 and 7,805.

• David also posted a Cycle Day 2 range target of 7,794.36. That made the area around 7,795 a place to assess whether momentum remained strong enough to extend, rather than simply extrapolating the morning move.

Reversal risk near the objective

• As price approached 7,795, David noted a significant loss of momentum and described a possible 2 p.m. reversal play against that zone.

• His follow-up required a move below the “89” study as the go signal. The written posts do not give that study a numerical price, so it remains a conditional setup reference rather than a new support level.

Late-session follow-through

• Subsequent updates reported the 7,795 target fulfilled, with 7,805 next on the roadmap. David said the expected range had been satisfied and that further extension would be a bonus.

• His auction commentary changed during the final stretch. Those room impressions are separate from the dated MIM readings in this issue’s MOC section and should not be treated as a final auction measurement.

Execution and the takeaway

• Member discussion covered fear, trading mindset, time frames and how studies behave when momentum flattens. The useful thread was the need to distinguish a recognizable setup from a complete execution plan.

• The day illustrated an evolving repair thesis: establish the range, identify supported long opportunities, track objectives, and become more selective once the expected range is satisfied. It did not establish that every upside objective traded or that any particular member achieved a stated return.

Polaris Trading Group’s October 15 Daily Trade Strategy

DTG Room Preview

The DTG group enters Friday watching whether Thursday’s recovery can hold above the 50-day moving average near 7,779. The group’s near-term bias remains constructive, although it describes overnight volume as too light to carry much weight.

Structure and volatility

• The group’s five-day average daily range is 69.50 points, up from 67.75 on Wednesday.

• The former channel top around 7,792–7,797 remains the first resistance area after containing Thursday’s high.

• The group places the rising channel’s nearby support around 7,722–7,728. Its separately listed lower trend-line band is 7,713–7,718; treat these as distinct nearby references.

Levels to watch

• Above the first resistance band, the next zones are 7,893–7,898, 7,924–7,929 and 8,014–8,019.

• Failure to hold the nearby support structure would weaken the recovery. A much deeper reference sits around 7,409–7,414.

• Watch acceptance or rejection at 7,779 rather than assuming that a move through the moving average will follow through.