HY ETF Flash Crash Prevented In Last Minute By 3 PM Market Ramp

Tyler Durden's picture

While the furious tape painting attempt into quad witching continues courtesy of a surging EURUSD, which we anticipate will sell off shortly once again, as tomorrow brings absolutely nothing actionable out of Greece, a better indication of what is happening in the market are the High Yield ETF JNK/HYG which both were just been punched out. It is unclear if this ETF was the plaything of some HFT algo (we will follow up with Nanex shortly), but it appears that these ETFs would have been a direct casualty had the sell off continued after 3pm, at which point the bidside of the Level 2 order book essentially disappeared, and the only thing that prevented an epic collapse was central bank purchasing of the EURUSD which lifted the entire market. Yet what is nonetheless quite bad for holders is that the JNK/HYG has now taking out not only 2011 lows, but lows unseen since September 2010. The ETFs tend to be a good proxy of the actual cash HY market as can be seen in the second chart below. Which is why we send our condolences to all HY fixed income hedge funds which are about to be dealing with some very substantial margin calls. The crash may have been delayed but has not been prevented.


And comparing the HYG to the HY CDX index:

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Coxxy's picture

There has been an arb here for 3 days, can't believe it took this long to pick it up.  HCDX16 was extremely cheap spread to HYG/JNK for the last three days. 

All it takes is a lack of liquids for these to come out.  When you only have 5-6 trades on the cash side and 300 on the synethic side something has to give.  Full disclosure I did clean this out and these aren't the greatest shorting vehicles because of the carrying costs. 

RobotTrader's picture

Not much ramping in EUR or AUD.

Probably just some Algos that had to puke up some blood for a few hours.

CRB Index still weak, dollar still strong.

SwingForce's picture

No such thing as Quad witching, futures expire at close today, settled w/ open in cash tomw.

SheepDog-One's picture

Robo youre the most ridiculous poster ever.

The Axe's picture

market feels washed out for the time being....got to ramp it up for expiration

RobotTrader's picture

I agree.

Bandwagoning puts and the inverse funds has been a no-brainer for days on end.

I say we rally hard soon, probably back up to the declining 50-day EMA, then that will be the place to look at more shorts.

Bears have done great the last 30 days, but now they are pressing their bets too hard.

Josh Randall's picture

RIOT DOG pisses on your Uncle Gorilla

Highrev's picture

Beautiful ping off the 200dma on the SPX and the RUT. (Also at very important horizontal pivot support, but momo is telling me that whatever bounce we get should be short lived and we should get a retest.)

It's the S&P that still rules the roost.

Dr. No's picture

But we will get oil down to $85. USO broke support that $38 support.  Went long ERY to see how low it goes.  Hard rally?  will need some serious good news to drive a rally, dont know where it will come from.

SheepDog-One's picture

The only no brainer around here is you Robo.

Robslob's picture

And Robo still junkposting...all is well and normal for yet another day!

SwingForce's picture

Why, becuz he/she/it is the only one here who doesn't drink the PM Kool-Aid? 

Franken_Stein's picture


Time to drink more Kool-Aid

at the tinfoil hat brigade.


Big Mac's picture

Look at the history for HYG. Actually a worse candle on 5/06/2010 and a worse tail on 11/24/2010. Looks like the algos love to gun the stops on the uninitiated. Double digit % total returns in up trends if you kept out of the volatility downdrafts.

Franken_Stein's picture


We see a flash crash with "milk III" at the CME.

Down by 8.86 %.


Highrev's picture

Tough job that one of manipulating FX. It takes a CB to be sure, and what's the half-life?

Nasty daily shaping up on the USD though. Let's see how it closes.


Add: Wow, the EUR/USD just keeps going.

buzzsaw99's picture

I assumed the smallness of the junk (heh) spread was due to the bernanke put. Bennie will buy them if it all goes to pot sez I. Nobody (read everyone) loses on Bennie's watch.

The Axe's picture

going watch Phil screw-up another US open...kind of like my trading..long 100 CAT 92.50 calls June...looking for a big up day friday  baby....short-covering   and greed should do the trick.....Miller-Time.

The Axe's picture

Look that's like a double-boogie

chump666's picture

asian central banks were buying eur on asia's close.  obliviously that contiued on europe and us opens, then traders hedge on US markets. desperate.  it's a bull trap that should sell into asia's open 

chump666's picture

most crosses are weak... just a market hedge ala US 

SheepDog-One's picture

Well it seems theyre having to go all out daily to prevent a crash...gee lets see how long they can do that for. Masters of denial.

The Fonz's picture

I am a bit worried that they are only thinking they need to hold on until the FOMC meeting... if that FOMC meeting doesn't give the market some crack, then the market will either go down or reveal itself to be unable to react to reality even without publicly admited stimulous.

oogs66's picture

ugh, i was too busy celebrating spx down that i missed this and then too busy crying that i missed the spy ramp.

chump666's picture

Investors went short the Nasdaq and bought positions on the Dow, confusing trade

Oh yeah the history of CBs manipulating FX is awful, good for like a few days - max, then the hedge funds regain control again.

As ZH is correctly pointing out liquidity is on the rise in bearish conditions, what does that mean...major short selling.


oogs66's picture

ZH was way ahead of the weakness in HY bonds.  It is not done yet.  How many hedge funds can really experience a 2% down month when all they were trying to do was make 7%.  Oops, wait, they were leveraged so they could make 10% after their 2 and 20.   So probably 3 times levered.  Down 6% mtd when goal was 10% net to investors.  this only ends badly.