So Just What Happened On July 15?
Now that the market is back to mirroring the melt up from last summer where bad news drove the market higher, and rare good news drove it to the moon, and every day's closing price is more or less predetermined in the prior premarket session, is it ok if those handful of people who still give a ratus gluteus about market structure understand just what happened last Thursday, July 15 (incidentally the day Goldman announced its settlement, and just pre the infamous OpEx), when the ES-SPY relationship blew up, as the chart below shows. Where futures and SPY have traditionally correlated to 0.999*, on July 15 something snapped.
OK - we realize that with the Fed out of bullets, land mines, grenades and bazookas, and just a nuclear bomb or two left in the arsenal (not to mention countless lies), and the administration set to suffer a historic loss in November, it will be Bernanke and Obama's only hope to ramp the market at least several hundred points over the next few months. That's fine - nothing would surprise us anymore. After all, mutual funds have a few more billion in redemptions to face before they are all tapped out so the market must illogically surge. But little market abnormalities like the one above still entertain and amuse, and if maybe Liberty 33 could release a press release, blink in Morse Code, or send some other signal as to what happened, we can all go to bed knowing that the abnormal is now officially perfectly normal. And we simply ask, because there was a time, a whopping year or two ago, when such a sudden and violent shift in correlation would mean someone certainly blew up. Of course, with trading now being executed by a handful of counterparties, it would make an answer to such a question all the more interesting, if completely irrelevant in the grand scheme of all things Ponzi.
h/t Credit Trader