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Options Expiration Shanks Commodities, Investors Flee to Bonds
Mark it down.
Another classic options expiration blowout. Commodity stocks across the board were blasted as Goldman assured itself of vast profits once again by vaporizing recently purchased calls, and at the same time re-instated the deflation fears to send money fleeing back into AAA-rated U.S. Confetti.
Check out the bond yields today, another engineered collapse in yields, still scraping near 45-year lows:
| 3-Month | 0.000 | 12/17/2009 | 0.09 / .09 |
-0.007 / -.007 | 15:17 |
| 6-Month | 0.000 | 03/18/2010 | 0.18 / .19 |
-0.006 / -.006 | 15:14 |
| 12-Month | 0.000 | 08/26/2010 | 0.34 / .35 |
0.005 / .005 | 15:36 |
| 2-Year | 1.000 | 08/31/2011 | 100-03+ / .94 |
0-02+ / -.041 | 15:38 |
| 3-Year | 1.375 | 09/15/2012 | 99-20+ / 1.49 |
0-04 / -.043 | 15:31 |
| 5-Year | 2.375 | 08/31/2014 | 99-31+ / 2.38 |
0-09 / -.061 | 15:38 |
| 7-Year | 3.000 | 08/31/2016 | 99-26+ / 3.03 |
0-13 / -.065 | 15:38 |
| 10-Year | 3.625 | 08/15/2019 | 101-30 / 3.39 |
0-20+ / -.076 | 15:37 |
| 30-Year | 4.500 | 08/15/2039 | 105-16 / 4.18 |
1-13½ / -.081 | 15:35 |
Just some example of the outright collapse in some commodity names, no doubt, anyone who bought calls this week were pole-axed by Goldman's Prop Desk:
Meanwhile, the financials were relatively unscathed. Why is that? Because banks are enjoying practically zero funding costs by paying Grandma 40 basis points on her money market accounts and 1.6% on her CD's. Top that off by their ability to raise infinite amounts of debt or equity at the drop of a hat, with zero concern of dilution.
Just another successful day for the patented Bernanke, Geithner, LLP "Perpetual Motion Machine", where low borrowing costs are virtually guaranteed for Joe Sixpack, Fortune 500 companies, and the myriad clusters of speculators enjoying minimal margin interest rates.
Any wonder why near-bankrupt hotel companies are skying?
And airlines are going through the roof on anticipation of another "Midnight Massacre" to send crude oil prices back down to $20/barrel?
Watch and see what the Fembots bark out tomorrow to the 19-year old traders to get another new weekly close.
They will be cracking the whip tomorrow....
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I have been waiting to see "pole axe" again...that makes me laugh my ass off!
someone was working BAC pretty hard to keep it over the 17 strike.
Brilliant summary. Just the other day heard a rumor that someone got killed shorting natural gas... :)
He/She must'a known something! That's the first step to getting killed. The second step is always believing in something that ain't happening because you know.... gotta love that cognitive dissonance feature of these creatures!
Boy when it turns the exit gates will be crowded. Nice work RT. Thanks.
Andy - Thank you for catching this. I was using Yahoo Finance chart (mistake #1) for that gap this whole time, and the chart showed 109.68 low on 10/3 and 107.63 on 10/6. However, when using the adjusted historical price (see below) it comes to... 108.06 ! I can't do images, so the table below will look like hell. The link is better.
http://finance.yahoo.com/q/hp?s=SPY&a=09&b=3&c=2008&d=09&e=6&f=2008&g=d
Date Open High Low Close Volume Adj Close* 6-Oct-08 107.15 107.62 100.64 104.72 610,637,500 102.56 3-Oct-08 112.86 115.45 109.68 110.34 461,798,000 108.06 * Close price adjusted for dividends and splits.Gap closed, and not a penny more before the selloff!
Andy...you have kicked Robo's ass with that pic....I'm not sure he is man enough to meet your challenge....
At least I know it's not just me buying those puts (too early).
What's fishy to me today was the action in the PM miners. First, they fall off a cliff this morning for no real reason:
http://finance.yahoo.com/echarts?s=GDX#chart6:symbol=gdx;range=1d;compar...
But then check out GDX in the last minute of trading - a full point out of nowhere, and no corresponding moves in the underlyings. We'll see if that was a fluke trade or not:
http://finance.yahoo.com/echarts?s=GDX#chart1:symbol=gdx;range=1d;indica...
Thanks for the link, missed that one in the Commentary posts.
Someone is going to have to give Ben an early wakeup call if things continue like they are tonight. Can't have what's happening to the USD continue (buying, gasp!). First test is right now, 10pm ET is often a hardcore Dollar selling fix. One more for London fix before the 6am PPT program. If things stood as they are now, we would be looking at a top signal at SPY 108.
Andy,
After re-reading your linked comment, an observation of the market in gold and silver.
Up to few weeks ago there was a slow move up and frequently big moves down. To recover the down moves took a while.
A lot of goldbugs uttered a lot of whining about those “takedowns.”
Lately the game changed and somebody bought and all old resistance was broken easily. That looked more like a game of cat and mouse to me – with the shorts in the unusual role of the mouse.
Up to now the outbreak is not confirmed, but the market action looks everything but bearish in my opinion.
Ok, bonds are rallying right now.
But the spike at the end of 2008 could as well be the blow-off top of the trend going back to the early 80's.
I have a hard time to believe that bonds make a new high from here, especially with the high supply and lower savings as of late.
To Bullion: 1000 is/ was(?) definitely stiff resistance but the buyer blew through like a hot knife through butter.
BTW, I am an engineer and use an error margin in the price.
To your point, there is still the last high of 1033 to be taken out and 1014 is not materially above the resistance. Moreover, in Euro gold is flat since late April now at 691 eu/oz and in Yen gold sits right below 3000 Y/g, a similar resistance to 1000 $/oz.
To me it comes down to a guess of the mood of the big buyer. That guy seems to be smart and patient.
The outbreak is not clear, but neither stopped dead. The jury is still out.
Mr. Dufresne, I believe you have scored a point on Robo.
Nicely done.
VIX INDEX:
Daily chart - ongoing *bullish* divergence.
Weekly chart - bearish / neutral.
Monthly chart - neutral.
more
http://www.zerohedge.com/forum/market-outlook
Andy,
I take an old-fashioned look through the lens of Dow Theory or a similar approach, Jesse Livermore’s Tandem Trading.
Dow Industrials and Transports gave a bull signal. Just to check I tested Russel 2000 and BKX, same bull signal. Gold and Silver- bull signal.
I did quite a bit of back-testing with that method and at the major turning points I checked I did not get a wrong signal.
In the bigger picture stocks and PM’s should move in opposite directions.
This time they move together.
That leaves in my opinion two possible explanations:
One, the move in stocks is overdone, and stocks correct/crash. The poor quality of the rally and the put-buying together with lousy fundamentals support this conclusion.
Second, the market has it right and the move makes sense. That implies that the unit of account has a problem. The Dollar gets inflated away and everything dollar-denominated goes up. The Dollar index made a bearish double top (second high not decisively higher then first one) and trending down right now supports this view.
To check from a different viewpoint, I tested the four stock-indices denominated in Euros. In stockcharts.com $INDU:$XEU and so on on daily and weekly charts. That gives a mixed message or in Dow Theory parlance a non-confirmation. Neither Transports nor Banks made a decisive new high; but Industrials and the Russel 2000 stocks did. To make it more confusing, gold is in Euros almost flat since the minor high at the end of April but silver made a strong move up, giving a bull signal and a non-confirmation too.
I bet with the market on inflation.
PS: That reads more like an outline to a longer essay, see if I will write that in more detail later.
It's the cross that makes it.
Isnt there ONE whistle blower in Gollem's Sack group or any of the others? They could clear their conscience and even get a nice book deal, but apparently they're all just pure ghouls.
there's gotta be one loose cannon that faked the psych eval?
Nice detective work Andy.
It just doesn't seem like anything but a huge catalyst will roll this pig fart over. I hardly doubt a gap fill is grounds for a reversal on this rabid orgy.
The only thing left is the delusional optimism that comes when everyone feels like there is no end in sight to the upside...which I think cannot happen until we blow through dow 10k or perhaps even dow 15k.
EDITED to say thanks for the knobs. Robo's weren't so great today
Certainly looks like an old gap fill to me.
Remember Robo, the names like SGY and HL are extremely volatile intraday. DXY showed unexpected strength intraday. High-beta energy and silver? Toast on a day like this. And they had to come down.
Of course, I'm sure Goldman isn't participating on the dollar trade...right?
Option ARM resets have started this month. Don't count on much more upside. The pain is coming now.
http://news.yahoo.com/s/nm/20090917/bs_nm/us_usa_housing_optionarms
Look at the four week Ts at .01%. Seems more than a few are repositioning ahead of the backstop expiration.
Andy..
I think the 50% retrace from the 2007 highs to the 2008 lows is 1122 on the S & P.
My thinking is that we will be gunning up to that number before the big fall into October.
Not too far away, another 300 points on the Dow will probably do it...
I plan to unload all longs at that level.
I'd get out at 1111. Love the post.
You exaggerate the moves and it's getting a bit boring. Are you making no money from trading or what?
I can't get past the second, lower gap, enough to focus on the chart. I hope it's filled and not with SPYDRs.
dont forget about that gap at 10200 on the dow
or the one on spx ~900
What is the bullet and who pulls the trigger??
That is the rear window question, cause it is not coming at us head on.
Does anyone else find it striking that over 2.9MM calls traded among the SPY Sept 100 to 105 strikes today? The largest open interest among them is the 105's at 123K, and that strike had 984,000 options trade today. That kind of volume, even for an expiration quad witching day, seems whacko. Andy you mentioned the squid possibly selling those calls knowing the close would be gamed to the downside. It must be something like that, who else could take down so much size?
@ RobotTrader
It's 1121.44 for the 50% retrace. Currently we're at the halfway point (1067.79) between 1121.44 and 1014.14 (the 50% and 38.2% retraces). Chart here: http://www.charthub.com/images/2009/09/16/SP500_Weekly_Fibos
oops. Here's the link: <a href="http://www.charthub.com/images/2009/09/16/SP500_Weekly_Fibos">http://www.charthub.com/images/2009/09/16/SP500_Weekly_Fibos</a>