Update: Intraday Attempt To Push Stocks Higher Presents Attractive RISK Spread Compression Opportunity

Tyler Durden's picture

Update: Today the FRBNY-Citadel tag team won. The spread which
started at an attractive basis, ripped wider and did not look back at
all. According to some desks, the main reasons for the assymetric
performance was early May window dressing (tomorrow markets will be
dead), as well as the 50 DMA VWAP. Additionally, as John Lohman shows
below, the correlation between the two legs settles at a 15 month low of
48%, indicating that everyone today was gunning stocks, even as they
were also buying bonds (sending yields lower), and not touching other
risk assets, in what can only be classified as a complete correlation breakdown. To those who were stopped out, there is always next week, especially since this divergence will eventually be forced to close.

Original post:

The now traditional mid-day attempt to boost stocks by the FRBNY has once again resulted in a substantial divergence between the ES (aka the S&P) and all other risk indicators (10y, curve butterfly, EURUSD, AUDJPY, Crude and Gold), the spread henceforth known as the "RISK spread" (courtesy of Capital Context), meaning that the "buyer" of last resort is throwing what little money it has left purely into ES keeping the stock market, aka the Russell 2000, aka the "Economy" afloat. Those who enjoy closing the spread divergence would be encouraged to take the opposite sides of this pair trade with the expected compression bent by EOD.


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kengland's picture

I was under the impression that ZH doesn't trade the ponzi known as the market?

oogs66's picture

any more details on the ESBASKET composition in order to be able to buy it? 

firstdivision's picture

If I remember correctly, it consists of JPY carries, 10Y, 2-10-30 butterfly, and EURUSD.  If you were to buy it, I'd say go long AUDJPY (but now that Australia looks like a RE bubble I'm a bit worried on the correlation holding). 

*EDIT* looks like it just widened.

Also, don't go long AUDJPY, but 10Y was one that wasn't following.

Yen Cross's picture

 Aud exports, real estate, retail, and tourism are hurting! If I were to buy it I would say short aud against the chf,jpy and gbp! Aud is a spx, commodity correlated currency.

jesus_quintana's picture

Been trying (unsuccessfully) to get an answer on that since ZH started featuring this. Seems like Tyler wants it to remain a trade secret for now. However, a pretty accurate proxy seems to be to rebase each of the individual components to last night's SPX or ES close and use the average (i.e. equal weighting). Currently showing a 9 point divergence v SPX (about 7.5 v ES) on my charts.

Forget trying to buy the basket though, way too complicated/ costly to execute.

aint no fortunate son's picture

When EVERYBODY finds out about the spread divergence as its plastered all over the blogs, guess what?

Ben and Jamie chuckle...

SheepDog-One's picture

Hillarious watching the 100% manipulation daily, while 99% of people have no idea. Just walking about in the matrix like ants, oblivious to it all.

augie's picture

The worst is understanding the manipulation, but being unable to explain its intricacies in a simple yet effective way. I feel like a 3 year old telling its parents it needs to take a shit.


camaro68ss's picture

should i buy more nextflix or should i dig more silver out of the ground for $5?

Mercury's picture

So, in this representation of the phenomenon, is the white line an equally weighted basket/index of the 10y, curve butterfly, EURUSD, AUDJPY, Crude and Gold?

buzzsaw99's picture

Sell the Blip?


Alas, poor Yorick, I knew him Horatio. A man of infinite jest. He went 3X short over the weekend and got his head chewed off by a squid.

swissaustrian's picture

STFB = Sell the fucking blip

zaknick's picture


UBS may relocate investment bank outside Switzerland http://reut.rs/l9NStZ 5 minutes ago via dlvr.it

* Reply
* Retweet

Think that could have something to do with IMF telling SNB to raise rates when CHF is already choking exports?

I understand Wikileaks (supposedly a cognitive infiltration Rothschild op) got its big publicity break when it revealed tax evasion by Julius Baer clients (who apparently are not part of the bankster KKKlan). Their CEO committed suicide shortly thereafter.

Any truly intelligent life form left on this forum? Anybody interested in what's really going on?

swissaustrian's picture

The country's financial watchdog FINMA is pushing UBS, which was one of the biggest casualties of the credit crisis, to set up its risky investment bank as a separate entity outside Switzerland in London, New York or Singapore, the newspaper said.

Swiss regulatory bodies try to enact a rule similar to the volcker-rule. They want to protect swiss taxpayers from the comming ubs (IB) collapse.

UBS´s investment banking core strategy is fixed income, aka road to desaster.

Archimedes's picture

fed is running out of Breath. It is only a matter of time now as they cannot keep spiking REITS. QE2 ends June 30th but doesn't the last POMO end June 9th? That might be a good time to put on my shorts.

I think the FED meets in August and then in November. Who is placing bets they announce QE3 in August? I think they wait until November but by then it may be too late as even the dumbest of Americans will realize we are FUBARed.

But by November it may be too late. If the economy is slowing while they are still pumpimg 120 billion a month what happens in July-October? First one out of the pool wins!

Boilermaker's picture

Agree with that.  I watch the REITs every day and it's just flat amazing how hard they jackhammer the REITs.

Obviously, they're back at it again today and soaring the damn things into the stratosphere.

CRE up another 1%+ today even against the broad market.

I have no earthly f'ing clue how long they can continue it.

disabledvet's picture

Descartes actually compared himself to you Archimedes...but i for one disagree.  "You invented the propeller."  Having said that "i look at 800 dollar tires myself" which is "something the Fed let get out of control."  in short "throwing the entire labor force under the bus still isn't enough to control inflation."  why the market goes up OR down is anyone's guess of course--why prices simply go up on the other hand--well, let's just say "we'll leave you guessing Archimedes."  It does involve the word "screw" however!

Yen Cross's picture

 It's the masses. My tires cost more. The market is a curve. Research Bollinger Bands.

equity_momo's picture

Great post.  Be interested in the exact composition of that basket.

rubearish10's picture

Man, this is like moving furniture on an ant farm.

JW n FL's picture

Tyler LOVES US! so dont forget to tip the guy that keeps us all in money, when he can!

seriously, if you can squeeze 10k you can write off 5% entertainment for Tyler!

JW n FL's picture

shit make it 10% and call it a consulting fee! lol Tyler gets hammered tax wise any way!

LawsofPhysics's picture

Thanks TD.  This is similar to your last post, ESM1 correcting to ESBASKET ahead of the close, correct?

camoes's picture

Market efficiency bitchez!

101 years and counting's picture

the Fed needs to give the banks free money, one way or the other. buying ES higher lets the bank sell at better prices.


camoes's picture

Might as well buy silver with the basket..

rajc's picture

wish i knew how to program this in tradestation...anyone..anyone? :)

chaunceyG's picture

why does the divergence always happen at roughly the same time of day??

MrTrader's picture


LawsofPhysics's picture

Wow, the spikes in the VIX correlate nicely with the beginning of QE1 and QE2 operations. duh.

JW n FL's picture

I need an esquire to File Suit in Federal Court Against the U.S. Government.. more over the President of the United States of America. Pro Bono in the name of Fight Club!


The Law Suit is for breach of the Constitution for bringing home the U.S. Army and now Training the U.S. Army to operate Against "We the People".


Who wants to get some T.V. face time for themselves and for Tyler here.. we want warm bodies to educate we have to up our visible profile.


I am looking for feedback and ideas to make as big a splash as possible! so if you have something that will help, speak up! even if you think its small! speak up! every little thing matters and helps! SO PLEASE!!! Speak Up!


slaughterer's picture

Thanks Tyler, shorting the roach motel intraday for the third time after your risk compression posts.

coscorra's picture

 Does anybody know for sure how FRBNY makes S&P go up? Do they directly buy the futures, sell puts or....? Can they legally do that? how is the flow of money from the fed to the spx? I quite agree that such strength in SP smells suspicious, and i stopped last a few months ago trying short it but i have yet to hear the complete explanation on how they do it.  Can anyone help?

Rick64's picture

Short the ES @1322 12:10 CT and short @1324 12:23 CT

augie's picture

please tell me your stop is above 1336

Rick64's picture

Out @ 1322.75 looks like it might break that 1325 area.

augie's picture

you gonna get back in on the way down? 3pm the selling starts.

Rick64's picture

Maybe, waiting for a better entry it just broke thru 1325. Gotta wait and see if it sets up for a short, I think your right that the selling will be in the A.H. session.

augie's picture

jesus hop scotching christ can we just break this stupid 1323 baby-back-bullshit and hit 1306 already?

Rick64's picture

Lol. Short @ 1326.5

augie's picture

nice entry. looks like after hours it is. Sorry i'm tradin spy puts and won't be able to share in the excitement of the dreaded 4 point range.

Rick64's picture

I'm out @ 1323.50 2:58 CT . I don't like trading A.H. can't trade as many contracts because of margin req.