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The Amazing(ly Profitable) Intraday Risk Divergence-Compression Trade Strikes Again

Tyler Durden's picture




 

Increasingly more people are starting to outwit the Fed at its own game, which appears to have run out of sufficient capital to manipulate all risk assets (troubles at Citadel?), and thus is forced to focus exclusively on the E-mini. While not pointed out explicitly today, those who were following the trade were presented with an amazing opportunity to pick several basis points when ES once again ramped away from the risk basket (AUDJPY, EURUSD, 10 year, 2s10s30s, Oil and Gold) following the more than obvious buy program attempt to triggers stops, only to slam back with a vengeance and close the gap at close. Like clockwork. The trade continues to be an ideal play for everyone who wishes to remain bull/bear agnostic, and merely trade against Brian Sack's increasingly desperate and underfunded attempts at risk manipulation.

A classic case of open and shut failed divergence:

And the more than obvious attempt to gun the market at 3:06 pm. Rejected.

 

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Wed, 05/25/2011 - 16:26 | 1310231 mynhair
mynhair's picture

Was waiting for this article.  Thanks to you, I'm learning a new trick.

Wed, 05/25/2011 - 16:49 | 1310322 redpill
redpill's picture

OT: The Eastern Black Swan Continues to Gain Altitude

http://enenews.com/radiation-dose-reactor-1-hits-new-high-204-sieverts-hour-drywell

Record high radiation detected in Fukushima Reactor 1 DRYWELL, 204 Sieverts/Hour.  Yes, that's sieverts, not millisieverts!

Wed, 05/25/2011 - 16:26 | 1310233 treemagnet
treemagnet's picture

If it feels good, do it.

Wed, 05/25/2011 - 16:31 | 1310259 AldoHux_IV
AldoHux_IV's picture

+1

Both very profound and hilarious at the same time-- well played Mauer.

Wed, 05/25/2011 - 16:28 | 1310239 Gubbmint Cheese
Gubbmint Cheese's picture

how would a retail minion play this?

Wed, 05/25/2011 - 16:31 | 1310248 buzzsaw99
buzzsaw99's picture

buy at 2:17 p.m. daily then sell the blip?

Wed, 05/25/2011 - 16:38 | 1310266 mynhair
mynhair's picture

Trust you to blow smoke thru my months of jury-rigging.  Though sometimes it's best to buy 40 minutes after a bond auction.

Wed, 05/25/2011 - 16:31 | 1310256 mynhair
mynhair's picture

You have to define surrogates for all the Gloomberg terminals can show.  I'm just hopefully getting the hang of it by keeping the FX list up, with whatever I can find for ES, and volume for 1 min SPY.

Wed, 05/25/2011 - 16:34 | 1310267 buzzsaw99
buzzsaw99's picture

keep your eye on the correlation?

http://www.youtube.com/watch?v=qRa9uhiAPBs

 

Wed, 05/25/2011 - 16:46 | 1310307 mynhair
mynhair's picture

Me likes birds.....

Wed, 05/25/2011 - 16:51 | 1310320 buzzsaw99
buzzsaw99's picture

Don’t go to bed with no shorts on your head

Don’t do it

Don’t do the crime if you can’t do the time

Keep your eye on the sparrow

When the ir spread gets narrow

Don’t roll the dice if you can’t pay the price

Don’t do it

Don’t run your feet down a dead end street

Don’t do jpm dirt or you’re gonna get hurt

Don’t do it

Don’t run away ‘til you hear what I say

Ain’t gonna fight with no squid in the night

Won’t do it

I’m gonna go where the FX wind don’t blow

Wed, 05/25/2011 - 16:54 | 1310342 mynhair
mynhair's picture

O, stop it!  Time to clean the screen again, dammit.

Wed, 05/25/2011 - 17:22 | 1310445 Muir
Muir's picture

Mr. Buzz

Hat tip, my good sir.

Wed, 05/25/2011 - 16:31 | 1310244 carbonmutant
carbonmutant's picture

This has potential...

ramps away from the risk basket are shortable...

Wed, 05/25/2011 - 17:27 | 1310426 Muir
Muir's picture

 

carbonmutant

"This has potential...

ramps away from the risk basket are shortable..."

 

me likes

(and well said by mutated non-organic life form)

(carbon non-mutant)

Wed, 05/25/2011 - 16:27 | 1310249 Cognitive Dissonance
Cognitive Dissonance's picture

Increasingly more people are starting to outwit the Fed at its own game, which appears to have run out of sufficient capital to manipulate all risk assets......

Sounds like an argument for QE 3 cubed.

Wed, 05/25/2011 - 16:32 | 1310263 silvertrain
silvertrain's picture

"dont fight the fed" script has been flipped..The inmates are taking over the prison...

Wed, 05/25/2011 - 16:36 | 1310268 oogs66
oogs66's picture

how do you make the riskbasket in bloomberg?  would like to replicate

Wed, 05/25/2011 - 16:40 | 1310283 mynhair
mynhair's picture

If you have that much in FRN's, why aren't you in gold?  It ain't Gloomberg.scam ya know.

Wed, 05/25/2011 - 16:37 | 1310270 AldoHux_IV
AldoHux_IV's picture

Hope that gold/silver breakaway from the risk on/off trade correlation.

Wed, 05/25/2011 - 16:35 | 1310271 FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Here's a question:

If QE3 is announced, just as the previous QEs have been... everyone will front run it and go strong and long equities, like they did for QE1, QE2... so, if there is no one short in the market... will the market still go up?

Surely, with everyone long and no one short, the market is more likely to go down on more QE announcement, no? Not possible for everyone to be on the winning side, and more likely that the majority lose... so if the majority are long, the market will need to make them lose by tanking, no?

Wed, 05/25/2011 - 16:38 | 1310293 mynhair
mynhair's picture

Why sell while the helicopters are orbiting?

Wed, 05/25/2011 - 16:40 | 1310303 silvertrain
silvertrain's picture

They may try to ramp this bitch with RUMORS OR LEAKS of a possible qe3.There you may have itchy trigger fingers who try to front run it..Just the talk may keep the shorts on there toes..Desperate people do desperate things so I would expect the unexpected..

Wed, 05/25/2011 - 17:35 | 1310501 ebworthen
ebworthen's picture

Ben doesn't have to say he is going to pull a rabbit out of a hat; he might do the endless multi-colored handerchief out of his sleeve, or the rope in the palms knot trick.

What is shown and not shown - and where attention is drawn or diverted - are equally important to the illusionist.

Wed, 05/25/2011 - 16:37 | 1310273 ml8ml8
ml8ml8's picture

This bodes poorly for Mr. Market.

Wed, 05/25/2011 - 16:38 | 1310280 tnfcfa
tnfcfa's picture

What is the Bberg symbol for the 2s10s30s fly?

Thu, 05/26/2011 - 04:47 | 1312302 jesus_quintana
jesus_quintana's picture

CIX <GO>

2 * USGG10YR Index - USGG2YR Index - USGG30YR Index

 

Anybody help out on how to replicate this risk basket as a CIX in Bloomberg? Comment below that Tyler posted the calc yesterday, but I can't find it anywhere...

Wed, 05/25/2011 - 16:40 | 1310286 Rick64
Rick64's picture

 Excellent trade idea. Good work ZH

Wed, 05/25/2011 - 17:25 | 1310455 Muir
Muir's picture

second Mr. Rick

good work ZH

Wed, 05/25/2011 - 16:40 | 1310296 JW n FL
JW n FL's picture

Playing with the FED's ability to provide Liquidity is like playing with Fire! I Luv ALL My Bro's here so please exercise due care.

Wed, 05/25/2011 - 16:41 | 1310304 JW n FL
JW n FL's picture

if you are shorting America! you are shorting yourself in the long run! dont get caught shorting anything, except oil! LOL thats FED Approved!

Wed, 05/25/2011 - 16:45 | 1310309 mynhair
mynhair's picture

No, I'm shorting YOU!  Always talking to yourself.....

Wed, 05/25/2011 - 16:48 | 1310311 JW n FL
JW n FL's picture

silver is almost $40.. time to short silver too.. I hear the FED's foot steps! he's coming!

Wed, 05/25/2011 - 16:46 | 1310314 mynhair
mynhair's picture

Short Ag my ass.  Well, until TCT gets back in ZSL that is.

Thu, 05/26/2011 - 05:35 | 1312321 Hephasteus
Hephasteus's picture

Just don't say niagra falls to the fed.

http://www.youtube.com/watch?v=_yJBhzMWJCc

Wed, 05/25/2011 - 16:59 | 1310362 PhattyBuoy
PhattyBuoy's picture

Isn't hoarding PMs the same as shorting the printing press du jour ...

How about those Canucks!

Wed, 05/25/2011 - 17:18 | 1310421 JW n FL
JW n FL's picture

those canadians have to much PM's.. I think if the lights go out I will need to go north and help lessen their load, considerably!

Just kidding! they will need rum! I can trade for it!

Wed, 05/25/2011 - 17:20 | 1310449 PhattyBuoy
PhattyBuoy's picture

A Rum Swizzle for Labatts Blue trade ... nice.

Wed, 05/25/2011 - 17:23 | 1310459 JW n FL
JW n FL's picture

lol.. no, no my friend.. we will need some shiney beeds of silver and gold for my chest! I have a war to fund!

Wed, 05/25/2011 - 17:25 | 1310464 PhattyBuoy
PhattyBuoy's picture

aye matey !!

Wed, 05/25/2011 - 16:53 | 1310348 mynhair
mynhair's picture

Ok, here comes FX restart.

Wed, 05/25/2011 - 17:01 | 1310361 Moog
Moog's picture

Many ETFs and stocks ramped higher in response to the futures ramp.  How do you eliminate the possibility that a big player ramped the futures so that they could dump their ETFs and/or stocks at a higher price?

Wed, 05/25/2011 - 17:00 | 1310365 mynhair
mynhair's picture

Pump it up, then dump.  3 day settlement for profits.

Wed, 05/25/2011 - 17:49 | 1310516 ebworthen
ebworthen's picture

Have you ever seen killer whales herding penguins or wolves herding sheep?

Wed, 05/25/2011 - 17:00 | 1310368 Franken_Stein
Franken_Stein's picture

 

You are arbitrageurs.

Wed, 05/25/2011 - 17:05 | 1310373 mynhair
mynhair's picture

Better than being poseurs.

Wed, 05/25/2011 - 17:00 | 1310369 mynhair
mynhair's picture

Ya baby!  Sell that USDHUF!

Wed, 05/25/2011 - 17:14 | 1310417 RobotTrader
RobotTrader's picture

1 month of gloom and bad news and S & P 500 down 37 pts from cash closing highs

I'm just speechless how this has held up after the greatest 2 yr run in U.S. stock market history with tons of bad news hitting daily.

Retail stocks like AZO, now nearly $300/share just 2 years after the biggest financial bust in 50 years.

Just shows the raw power of "ZIRP" policy and TPTB which simply will not allow stocks to drop.

 

Wed, 05/25/2011 - 17:19 | 1310424 mynhair
mynhair's picture

Yep.  Now prepare for the hit posts.  I became speechless after losing 30K to this shit.

Wed, 05/25/2011 - 17:29 | 1310466 Muir
Muir's picture

"1 month of gloom and bad news and S & P 500 down 37 pts from cash closing highs


I'm just speechless how this has held up after the greatest 2 yr run in U.S. stock market history with tons of bad news hitting daily."

-

It's all priced in, baby.

You gotta love these ultra efficient markets.

Wed, 05/25/2011 - 17:54 | 1310553 ebworthen
ebworthen's picture

I'm certain there were lots of amazed people in the late 30's right before they sent their Sons off to die in WWII.

Wed, 05/25/2011 - 18:39 | 1310723 SwingForce
SwingForce's picture

RUT held after ES dropped... Banks suck. Gambling stocks up- that's where the CASH is.

Wed, 05/25/2011 - 21:02 | 1311211 unununium
unununium's picture

Adding to AZO short.  Just because there are earnings don't mean it ain't a ponzi.

This stock is worth less than nothing in liquidation, and every quarter book value drops further as they borrow more to buy back more.

 

Wed, 05/25/2011 - 17:17 | 1310428 RobotTrader
RobotTrader's picture

Maybe one or two more down days, currencies look like they are ready to turn and gold and oil stocks have shown relative strength like "Risk On" run is about to take place.

http://clearstation.etrade.com/cgi-bin/bbs?post_id=9495742

Believe it or not some gold stocks are up 4 - 5 days in a row yet the GDX/GLD ratio is still in the gutter showing that a huge run in stocks could be in front of us.

http://stockcharts.com/h-sc/ui?s=GDX:GLD&p=D&yr=1&mn=0&dy=0&id=p77775107615

 

Wed, 05/25/2011 - 17:25 | 1310456 mynhair
mynhair's picture

Must....have....window...dressings...

Wed, 05/25/2011 - 18:15 | 1310609 Cthonic
Cthonic's picture

Really need to see 2008 to put that GDX:GLD ratio into perspective:

http://stockcharts.com/h-sc/ui?s=GDX:GLD&p=W&b=5&g=0&id=p42954209118

Wed, 05/25/2011 - 19:13 | 1310838 SwingForce
SwingForce's picture

Good work, thanks.

Wed, 05/25/2011 - 18:36 | 1310709 sellstop
sellstop's picture

Gold is about to roll over.

Stocks about to roll over.

10Y UST going up.

gh

Wed, 05/25/2011 - 18:48 | 1310756 SwingForce
SwingForce's picture

Ya' know? All the opinions from Stockmans, Pimcos, Chanos, Kass, Hochberg, they all repeat themselves day after day. THIS is where the talkin' is! Thanks Ty & Robo ( or robot) this is the Real Deal. Thanks guys & gals, awesome site. Donating money , first time.

Wed, 05/25/2011 - 17:21 | 1310454 JW n FL
JW n FL's picture

O.T.

Wiki War: Israel, Palestine dig digital trenches http://t.co/8kkWqsz

Wed, 05/25/2011 - 17:28 | 1310465 jesus_quintana
jesus_quintana's picture

Asked last week, and I'll ask again - can anyone tell me how the risk basket is calculated? I have a bberg, and happy to post the divergences as and when they happen. Ta.

Wed, 05/25/2011 - 18:05 | 1310585 ebworthen
ebworthen's picture

I search and search the internets and all I get is this crap:

http://www.longaberger.com/resources/1/flyer/mayjune11/spread2-3.aspx 

Wed, 05/25/2011 - 18:59 | 1310789 SwingForce
SwingForce's picture

Oboy, are you just discovering the HOAX in Index Methodology? How about the DOW?

Thu, 05/26/2011 - 02:53 | 1311222 ebworthen
ebworthen's picture

Oh no, I follow the Samuel Clemens school of statistics.

He asked for information on calculation, which is completely different from belief or understanding.

I'm neither an ecclesiastic nor a politician so I'll stay out of attributing understanding (though I do note that at the core of the equations the units of measure are Earnings Per Share - ack!).

Wed, 05/25/2011 - 19:15 | 1310845 SwingForce
SwingForce's picture

Tyler answered yesty.

Wed, 05/25/2011 - 17:44 | 1310536 The Mummy
The Mummy's picture

Does anyone know how to chart this risk basket in ThinkOrSwim?

Wed, 05/25/2011 - 18:14 | 1310616 mynhair
mynhair's picture

Just pay the 40K a month for a Gloomberg terminal, and call it good.

Might be /year.

Wed, 05/25/2011 - 19:03 | 1310793 SwingForce
SwingForce's picture

Use The FORCE, Luke. Can't you Feel It?

Wed, 05/25/2011 - 18:35 | 1310700 chump666
chump666's picture

Good stuff, now a author who adapts to the markets.  I respect that.  The FED are stuck now, a QE3 with keep compression bull/bear trades going but with a  wider spread.  There is money here for us poor traders, after the double up off risk buying last *cough* two fucking years for buffet value trading - which will be decimated in volatility.

Emerging markets should get the short sell treatment now ala Hedge Funds on China slowdown.

 

Wed, 05/25/2011 - 19:04 | 1310814 SwingForce
SwingForce's picture

Americans will pay CELLPHONEs before anything, before mortgages (because banks don't accept $100 partial payments), before Health Insurance, before paying income taxes (a joke), so what about SPRINT? Looks good to me, new 52 week high today. Comments?

Wed, 05/25/2011 - 21:06 | 1311228 Fred Hayek
Fred Hayek's picture

I don't know about the economics of it. 

But I think you're right about the frantic reliance upon the cell phone.  My god, anything rather than being left alone with your thoughts.  So many would find nothing.

Wed, 05/25/2011 - 21:07 | 1311251 dcb
dcb's picture

I think you are wrong. this is how a base is built with people selling at the new high, but supporting the low. I thik we have seen teh bottom in a while. I like speed lines, and this is where I thought it would be on many indexes.

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