After Hours

Putting the cherry on top of an ugly day for bulls comes global tech vanguard IBM, which did not use the DVA wildcard and still saw its earnings beat already reduced expectations of $3.22, printing at $3.28... but... it did miss the consensus top line of $26.34 billion by just under $200 milllion, at $26.16 billion. Since this the first time in probably forever that Big Blue has not beat the top line, the stock is certainly not too happy after hours. That this is happening despite the company's boost to its EPS forecast is quite troubling.

Don't write Google off just yet. The company, which had left many wondering if it can continue to compete with the same level of intensity, just crushed consensus, with Q3 EPS of $9.72 beating expectations of $8.76, while revenues coming at 9.72$ billion on expectations of $7.23 billion. Cash of $42.6 billion, not quite Apple but still lots of potential acquisition targets.. Immediate result: stock up $40 after hours. From Page: ""We had a great quarter. Revenue was up 33% year on year and our quarterly revenue was just short of $10 billion. Google+ is now open to everyone and we just passed the 40 million user mark. People are flocking into Google+ at an incredible rate and we are just getting started!" Some other details from the press release...

The squeeze continued in equities as indices of the most-shorted names handily outperformed the broad market but it was the general aggression with which equity's moved relative to both credit and broad risk assets that will raise eyebrows as rumor after refutation after no-news after denial seemed to have full optionality with all the upside (hope) and no downside (reality). Equities and credit stayed relatively close together until the early afternoon but as we headed into the last hour or two equities were making higher highs as credit lower highs. Combined with underlying relative weakness in financial stocks, net-selling in bonds, and negligible compression in their CDS, it seemed equities may just be tottering but an upper cut from Gasbag and a left cross by YHOO/MSFT and ES took off to the races - well beyond credit, broad-risk-assets, and sense. After hours, ES pulled back closer to fair with credit indices and context but remains considerably 'better-looking' than most other assets would infer.

There are only two ways for Apple to proceed (as) successfully in the medium term: 1) cut prices or 2) raise the technological bar. Either way, margins get hit. This is the first time Apple has released a smart product to boos from expectations set by the Android camp!!!

I have been very bearish.  I fought some strong moves up.  I argued why certain things wouldn't work - and by certain things, I mean everything the politicians out of Europe said.  I'm not planning on being long for long. Europe is fracturing, but France, without a doubt is still pushing for a solution. The data has been marginal, but not horrible. BAC was a disaster again today in terms of stock and then there is Morgan Stanley. I'm playing around for a quick bounce.  I might be being too cute, but too many of the moves seem ripe for a rebound.  I do think, as some smart commenter on ZH pointed out, that 1120 is now resistance rather than support. And with regard to Buffett, are we as a country, ignoring some people, who may not always be bullish, but at least have been right more often than not in the last 10 years?  As a business and a country we should be looking for other oracles, and some of the best out there aren't always positive, but maybe that is what we, collectively need, a harsh dose of reality.

Another day, another roller-coaster ride in US equities as every other asset class was relatively well-behaved. We lurched from headline to headline all day long - up on some hope of a 'deal', down on news that nothing was achieved, up on 'progress', down on a revisit in October - but the lurches were much more evident in US equities than in FX, credit, TSYs, PMs, and commodities. These other markets were not dull by any means but did not exhibit the absolute schizophrenic paranoia that equities did and this was critical in getting a handle on trading today as with 30 minutes to go, equities tore back down from Friday's highs to reconnect with several fair-value models across broad risk assets and the credit markets (highlighted in our earlier European close snapshot).

Less than an hour ago, Larry Kudlow tweeted the following: "Sources tell me Italy has to restructure bonds.Deposit run on Italian banks.EU will have to mount Tarp rescue.Big stress on interbank loans." Basically, this is the worst possible combination for Europe which means that another bailout is not only imminent but has to happen tomorrow. Incidentally Reuters is reporting of an emergency meeting between Sarkozy and Merkel and Zapatero on "the markets" which can only mean damage control following today's disastrous Trichet performance. Too bad the markets won't buy it any longer absent some actual actions to back up the deeds. Yet what we are more concerned about is whether or not there really is a bank run in Italy which would be the end of the euro. For that we went to the most trustworthy indicator for European "bankrunness" the EURCHF. To our surprise, the pair just plunged nearly 100 pips after hours, after dropping over 200 pips from intraday highs following yesterday's SNB intervention. Will this force the SNB to intervene again? Find out shortly. AS to what Sarkozy has up his sleeve, we will just have to wait and see when the European markets open in about 10 hours.

For those who thought the crocodile algo or the fractal HFT patterns were crazy, you ain't seen nothing yet. Earlier today, Nanex caught arguably the most berserk HFT algorithm yet captured on film, or jpeg as the case may be, in the trading of Earthlink stock shortly after hours. What happened next is one for the ages... Because it certainly will not make it to the regulators. In essence, we had our first spotted appearance of the Whack-A-Mole algorithm, which allowed one, if one is fast enough, and incidentally one isn't, as all the bids would be cancelled at the same time as they were sent out, to make free money on a 10% trading spread between the bid and ask. Gone is any pretense of an NBBO, gone is any pretense of an orderly market: it is the wild, electronic, and nanosecond west out there.

Tonight just got that Lehman Brothersy feel to it. After hours of delays, Boehner just experienced a supreme dose of humiliation after he announcing he would cancel tonight's much delayed vote on his deficit plan after apparently being unable to get the requisite 218 votes to pass his plan though the Congress (forget that it would never pass Senate or the President). Boehner has said he will instead hold an emergency meeting with members Friday morning but the damage has been done. The result: the markets are now in absolutely terrified mode, with ES just plunging by over 12 points on the news, the dollar hitting fresh post March 17th lows against the Yen following the Fukushima explosion, and overall total chaos appears to be on the horizon. And with Europe about to open, all hell is about to break loose. Something tells us that the deer in headlights will be on prominent display tomorrow, not to mention the bear cavalry.

Research in Motion has been one of the most successful tech shorts of BoomBustBlog's history (thus far). We first recommended a short last year and reiterated it in the fist quarter of this year and the stock has dropped 50% since, with more room to run?!

A month ago we presented the strange case of the fractal algo gone amok while trading natural gas in a low volume after hours session. We expected that we would see this surreal trading pattern in other commodities shortly, although little did we know that it would impact the most important of them all, as soon as month later, and during peak trading hours. As the chart of CL EQ1 below shows, not even crude is safe any more from this aberrant trading algorithm which has now infected, it is safe to say, virtually every product. If NYSE Boerse's Duncan Niederauer is really confused about what is causing retail investors to depart in droves out of pure disgust with what are terminally manipulated markets (and not just stocks), we hope this chart provide at least a few clues.

Bank of America may be about to part with more money than it has earned since 2008 in what will soon be the biggest financial settlement in the industry to date According to the WSJ, the Charlotte, NC-based bank is preparing to pay $8.5 billion to settle mortgage (mis)representation claims (aka the Mortgage putback issue) brought on by such high profile figures as BlackRock, Pimco, MetLife and, of course, the Federal Reserve, previously discussed on Zero Hedge. "A deal would end a nine-month fight with a group of 22 investors that hold more than $56 billion in mortgage-backed securities at the center of the dispute, including giant money manager BlackRock Inc., insurer MetLife Inc. and the Federal Reserve Bank of New York." Keep in mind that this is actually not good news for the bank, contrary to what the company's stock is doing after hours, as this still keeps the company exposed to a multitude of other rep and warranty litigation (which will now be largely underreserved), not to mention fraudclosure issues, which are totally unrelated, and which will plague the bank for years and years. Lastly, BAC is largley underreserved (see below) for a settlement of this size which means its Tier 1 capital ratio will likely be impacted due to a major outflow of cash.

Stock volume, hiding for so long, finally made an appearance. The all dominating ES, which determines the stock price for virtually every other security in the stock market, surged to 3.7 million shares, the 3rd highest in 2011, with only the post-Fukushima nuclear explosion panic from March, when the Nikkei briefly went bidless, higher, and also the third highest since the Flash Crash days of last May. As reported earilier, now that all support lines have been breached, the next bounce can be expected at around 1,244 or the 200 DMA. Should that be taken out and it will be to make way for Operation Twist 2, we will promptly see the 1,150s once again. After that, we are straight down to Jackson Hole levels.

While many have speculated that the May 6 flash crash was a combination of High Frequency Trading (primarily), quote stuffing, ETF participation, and overall liquidity reduction, few, and certainly not the SEC, have been able to pinpoint the participation of HFT in disruptive ETF movements. Indeed, HFTs have been isolated in individuals stocks (best seen in the infamous "crop circles" images from last summer here and here) and specific futures contracts (most recently the NG NYMEX contract which experienced a truly bizarre algo driven sine wave pattern before flash crashing with no fundamental input) but rarely in actual ETFs. Perhaps this has been due to the relatively high volume of trades in some of the most popular ETFs such as the SPY, where the impact of one single algo would rapidly get lost in the noise. Well, a few days ago, Nanex once again was the first to catch the NatGas "sine wave" in action in what is possibly the most actively traded product in the stock market: the SPY or Spider ETF. Today, Nanex once again brings something very jarring to popular attention by focusing not on the most trafficked "synthetic CDOs" but on numerous ETFs that have not been front and center in the public's eye, yet which could serve as a great practice springboard to total market manipulation via HFT strategies - strategies that if taken beyond their reasonable limit, could crash the overall market very much how the NatGas algo crashed the price of gas by 8% in seconds. Presenting the RETF algo....whose purpose is currently unknown, but whose presence in the market should be known by everyone who trades stocks.

Now that, my friends, is how you buy yourself some good Government!