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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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Thu, 05/26/2011 - 12:02 | 1313399 Gubbmint Cheese
Gubbmint Cheese's picture

Thx TD

Thu, 05/26/2011 - 17:30 | 1314523 kengland
kengland's picture

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

Thu, 05/26/2011 - 12:03 | 1313408 oogs66
oogs66's picture

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

Thu, 05/26/2011 - 12:27 | 1313426 firstdivision
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.

Thu, 05/26/2011 - 16:58 | 1314371 Yen Cross
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.

Thu, 05/26/2011 - 13:01 | 1313511 jesus_quintana
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.

Thu, 05/26/2011 - 13:26 | 1313683 Nicholaz
Nicholaz's picture

It's not that much of a secret.

And the whole thing seems to be an invention of anyway.

Thu, 05/26/2011 - 19:09 | 1314820 oogs66
oogs66's picture


Thu, 05/26/2011 - 12:54 | 1313584 aint no fortuna...
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...

Thu, 05/26/2011 - 12:09 | 1313419 SheepDog-One
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.

Thu, 05/26/2011 - 12:28 | 1313492 augie
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.


Thu, 05/26/2011 - 16:40 | 1314297 camaro68ss
camaro68ss's picture

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

Thu, 05/26/2011 - 12:18 | 1313429 Mercury
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?

Thu, 05/26/2011 - 12:12 | 1313431 buzzsaw99
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.

Thu, 05/26/2011 - 12:23 | 1313475 swissaustrian
swissaustrian's picture

STFB = Sell the fucking blip

Thu, 05/26/2011 - 12:13 | 1313446 zaknick
zaknick's picture


UBS may relocate investment bank outside Switzerland 5 minutes ago via

* 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?

Thu, 05/26/2011 - 12:18 | 1313468 swissaustrian
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.

Thu, 05/26/2011 - 12:26 | 1313484 Conrad Murray
Conrad Murray's picture

Anybody interested in what's really going on?

Thu, 05/26/2011 - 12:16 | 1313447 Archimedes
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!

Thu, 05/26/2011 - 13:02 | 1313612 Boilermaker
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.

Thu, 05/26/2011 - 16:27 | 1314263 disabledvet
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!

Thu, 05/26/2011 - 18:03 | 1314623 Yen Cross
Yen Cross's picture

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

Thu, 05/26/2011 - 12:14 | 1313450 equity_momo
equity_momo's picture

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

Thu, 05/26/2011 - 12:16 | 1313458 rubearish10
rubearish10's picture

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

Thu, 05/26/2011 - 12:17 | 1313461 JW n FL
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!

Thu, 05/26/2011 - 12:18 | 1313466 JW n FL
JW n FL's picture

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

Thu, 05/26/2011 - 12:18 | 1313467 LawsofPhysics
LawsofPhysics's picture

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

Thu, 05/26/2011 - 13:40 | 1313746 Nicholaz
Thu, 05/26/2011 - 12:22 | 1313471 camoes
camoes's picture

Market efficiency bitchez!

Thu, 05/26/2011 - 12:19 | 1313472 101 years and c...
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.


Thu, 05/26/2011 - 12:39 | 1313529 buzzsaw99
buzzsaw99's picture

flip that e-mini-me?

Thu, 05/26/2011 - 12:24 | 1313477 camoes
camoes's picture

Might as well buy silver with the basket..

Thu, 05/26/2011 - 12:33 | 1313503 rajc
rajc's picture

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

Thu, 05/26/2011 - 12:34 | 1313512 chaunceyG
chaunceyG's picture

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

Thu, 05/26/2011 - 12:31 | 1313513 MrTrader
MrTrader's picture


Thu, 05/26/2011 - 12:36 | 1313520 shockadelika
shockadelika's picture

Thanks TD

Thu, 05/26/2011 - 12:59 | 1313599 LawsofPhysics
LawsofPhysics's picture

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

Thu, 05/26/2011 - 12:46 | 1313556 JW n FL
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!


Thu, 05/26/2011 - 13:01 | 1313604 slaughterer
slaughterer's picture

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

Thu, 05/26/2011 - 13:04 | 1313620 coscorra
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?

Thu, 05/26/2011 - 13:28 | 1313639 Rick64
Rick64's picture

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

Thu, 05/26/2011 - 13:32 | 1313716 augie
augie's picture

please tell me your stop is above 1336

Thu, 05/26/2011 - 14:02 | 1313806 Rick64
Rick64's picture

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

Thu, 05/26/2011 - 14:22 | 1313872 augie
augie's picture

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

Thu, 05/26/2011 - 14:31 | 1313885 Rick64
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.

Thu, 05/26/2011 - 15:13 | 1313989 augie
augie's picture

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

Thu, 05/26/2011 - 15:33 | 1314049 Rick64
Rick64's picture

Lol. Short @ 1326.5

Thu, 05/26/2011 - 15:54 | 1314117 augie
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.

Thu, 05/26/2011 - 15:59 | 1314137 Rick64
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.

Thu, 05/26/2011 - 13:36 | 1313734 sheeple2012
sheeple2012's picture

suggest you hedge long some burrito, coffee, plastic shoes or pizza stocks... just make sure the P/E > 75

Thu, 05/26/2011 - 13:21 | 1313670 firstdivision
firstdivision's picture

Sweet Baby Jesus, this is getting silly now!

Thu, 05/26/2011 - 13:24 | 1313686 sheeple2012
sheeple2012's picture

Same story almost every day for 2 years... If we haven't crashed by 10am, buy the Q's and SPY's and sell Vix... head for the exit mid pm ...can't fight Ben Shalom & Sack might as well join em

Thu, 05/26/2011 - 13:27 | 1313689 LeftCoastRefugee
LeftCoastRefugee's picture

Ramp up continues.....

Thu, 05/26/2011 - 13:25 | 1313694 LRC Fan
LRC Fan's picture

The past 2 weeks have seen a recurring pattern.  Open a bit lower, attempt to tank around 10, sit tight for a few minutes, then rocket up 75-125 points.  Then right around 3:40 or so start selling off hard.  Really weird.  Maybe there are rumors swirling about Greece about to implode at any second?  QE2 actually ending for a bit?  Who the fuck knows.

Thu, 05/26/2011 - 13:47 | 1313752 alien-IQ
alien-IQ's picture

just went short the /ES at 1323.50. I'm expecting to cover between 1320-1318.50...lower if I'm lucky.

third trade on /ES today. short/long/short.

Thu, 05/26/2011 - 13:57 | 1313802 rigeltrader
rigeltrader's picture

how can one track this basket in bloomberg ? is there a symbol?

Thu, 05/26/2011 - 13:58 | 1313804 metastar
metastar's picture

I'm just a retail slave here. Going to try and play this via SPY vs GLD. Let's see what happens.

Thu, 05/26/2011 - 14:10 | 1313827 carbonmutant
carbonmutant's picture

 The stock market is a hungry god...

And will require many sacrifices.

Thu, 05/26/2011 - 14:22 | 1313870 earlthepearl
earlthepearl's picture

Just bought 50 SPY puts, let's see...

Thu, 05/26/2011 - 14:36 | 1313896 earlthepearl
earlthepearl's picture


can we get an updated version of the chart, i just got smoked in less then 5 minutes

Thu, 05/26/2011 - 14:50 | 1313926 dbach
dbach's picture

I was thinking the same thing, I would like to do a post-mortem and see what happened. Though the day's not over yet I think equities may have a little room to run. I was watching NQM11 today and it looks like it put in a nice med term H&S bottom over the past 3 dayish.

Thu, 05/26/2011 - 15:09 | 1313982 earlthepearl
earlthepearl's picture

Just doubled down, this things gonna drop

Thu, 05/26/2011 - 14:46 | 1313922 rigeltrader
rigeltrader's picture

with A/J and E/U up i doubt we will see the drop today

Thu, 05/26/2011 - 17:26 | 1314475 Yen Cross
Yen Cross's picture

 Aud is up on China buying Portugal and New Zealand. (Chinas new EU vendors) Gotta devalue that JUAN (fx reserves) somewhere. Inflation intervention!

Thu, 05/26/2011 - 14:50 | 1313930 stormsailor
stormsailor's picture

short 10 /es at 1326.50.  see how it works out.

Thu, 05/26/2011 - 15:57 | 1314143 Rick64
Rick64's picture

Nice entry.

Thu, 05/26/2011 - 15:00 | 1313956 Dick Trickle
Dick Trickle's picture

But ya know, just the other day I was thinking about what I'd do if I was appointed manipluator-in-chief.  Best I could come up with was to let some air out of the risk on trade but to do it in such a way that equities only bled 10-15% while the commodity complex got shucked for 30-40%.

And so it will be, I think, but stuff does happen- like nasty things that could crop up in MENA or a big problem with crops in a major growing region.

Even the omnipotent have bad days.


Thu, 05/26/2011 - 15:33 | 1314037 oogs66
oogs66's picture

Hi, can we get an update?  Has the arb closed at all?  Obviously stocks still up, but off hand I cannot tell whether or not the basket closed the gap.

Thu, 05/26/2011 - 15:54 | 1314115 There is No Spoon
There is No Spoon's picture

I don't think the arb opportunity was that great today since the aussie, the 10 year, and the euro trended higher most of the day.

Thu, 05/26/2011 - 15:54 | 1314126 metastar
metastar's picture

Carbonmutant may have been right. Fortunately I did not go in too deep on this one.

Thu, 05/26/2011 - 16:25 | 1314242 camoes
camoes's picture

Long USD/JPY Short ES


Thu, 05/26/2011 - 17:00 | 1314394 Yen Cross
Yen Cross's picture

 That sounds good. Been long since 80.5 on that move earlier this month. The 100day line has been resistance. Added @ 81.3 this morning and look to lighten the load in the mid-high 82's. Keep a close eye on T-Yields! I would pay more attention to shorting the crosses vs JPY, CHF, GBP, s/t usd.

Thu, 05/26/2011 - 16:27 | 1314251 The Fonz
The Fonz's picture

Man I went with a bet on this premise and now my butt hurts. It was actually kind of comical how badly my position went against me :P

Thu, 05/26/2011 - 16:27 | 1314252 RobotTrader
RobotTrader's picture

I'd be very wary about shorting when the REITs are so strong.

Thu, 05/26/2011 - 16:40 | 1314298 disabledvet
disabledvet's picture

i was told "short treasuries" but a few weeks ago.  would have been the worst trade ever but was presented as a "trading idea."  glad i don't like shorting treasuries "as a matter of principle."  interestingly "not the first time i've said that" btw--just ask MHFT--"even though i really agree with MHFT's analysis" and have for some time.  still--"markets can stay irrational longer than you and i can stay solvent"--would be interested in your thoughts on this comment.

Thu, 05/26/2011 - 16:31 | 1314267 slewie the pi-rat
slewie the pi-rat's picture

pony up the margin & double down?

Thu, 05/26/2011 - 18:07 | 1314634 Yen Cross
Yen Cross's picture

 Hey slewie, been trading light and studying. Month end flows, QE, Holiday season, Ect..

  Hope you have been well. I wonder if traders understand your double down concept?

Thu, 05/26/2011 - 16:40 | 1314299 speconomist
speconomist's picture

 early May window dressing (tomorrow markets will be dead)


Why is that?

Thu, 05/26/2011 - 17:09 | 1314421 Slim
Slim's picture

3 day weekend (Memorial day is Monday).  It would take something of real significance to bring major volume on a day like that i.e. Japanese disaster, Greece default, etc...

Thu, 05/26/2011 - 20:09 | 1314966 speconomist
speconomist's picture

Thanks, you've probably saved my ass!

Thu, 05/26/2011 - 16:46 | 1314334 Yen Cross
Yen Cross's picture

  Trade smalls or sit on the porch until Tuesday. Flows!  Crack out the charts and do some reading for the calendar q2 end (6-30).

Fri, 05/27/2011 - 00:58 | 1315595 BIGBOHICA
BIGBOHICA's picture

Thought'd I'd revisit this new trade idea. Anyone have Gloomberg? Looks like the Eur/Usd stop hunting closed the arb, but I can't confirm it.

Mon, 05/30/2011 - 22:56 | 1324292 joiceca
joiceca's picture

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