Yesterday's "best day in a year" was the ultimate Fed cat bounce as Nadaq Biotech stocks are collapsing today - approaching the crucial 20% bear market drop. With a loss of over 5.5%, this is the biggest drop since August 2011 and has the index very close to the critical 200-day moving-average support. The Biotechs are now down 2% year-to-date at new 4-month lows.
It appears yesterday's "Fed Cat Bounce" was exactly that. While the momos are making headlines, selling pressure is broad-based now and the S&P has just joined the Russell, Nasdaq, and Dow in the red year-to-date... "Growth" stocks are at the lows of the year relative to "Value"
There's an all-out Global currency war being waged and yesterday the Dollar was the clear winner.
Investors, or perhaps algos, it appears are shocked that the Fed is just as dovish as it has always been (despite endless speeches since Yellen's six month comment - but will not tapering the taper) and today's minutes sparked a short-squeeze loaded VIX-slamming jerk higher to get the Dow back to unchanged from the FOMC statement (S&P back to unch on the month and Nasdaq back to unch on the year). Bond yields ripped lower (the best FOMC minutes day since the Fed announced QE3 expectations) with the short-end outperforming (unwinding only 50% of the flattening post-FOMC) and long-end selling off. Gold and silver had been fading early but rallied on the FOMC minutes (back above $1310). Oil pushed on to $103.50 and copper rallied back to unch (supported by PBOC buying rumors). Credit markets were diverging notably before the FOMC jerk but remain wider on the week. Just as the initial squeeze euphoria ("most shorted" stocks had their best day in 2 months) was fading, the 330 Ramp in JPY occurred and lifted stocks to the highs of the day.
- Top Medicare Doctor Paid $21 Million in 2012, Data Shows (BBG)
- Separatists build barricades in east Ukraine, Kiev warns of force (Reuters)
- Greece launches sale of five-year bond (FT)
- High-Frequency Trader Malyshev Mulls Accepting Outside Investors (BBG)
- U.S. defense chief gets earful as China visit exposes tensions (Reuters)
- GM Workers Who Built Defective Cars Fret About Recall (BBG)
- Kerry, Congress Agree: Superpower Status Not What It Was (BBG)
- Crimeans Homeless in Ukraine Seek Solace in Kiev Asylums (BBG)
- JPMorgan's Dimon says U.S. banks healthy, Europe lagging (Reuters)
While the Nasdaq was unable to get back above its crucial 100DMA, it outperformed today (Biotechs went nowhere) as the S&P 500 dipped-and-ripped off its 50DMA (and the crucial 1840 level for bulls). The problem with all this "the correction is over" chatter... nothing else is buying it... Treasury bond yields slumped lower (7Y -15 bps from Friday highs and back to FOMC levels) with 10Y < 2.70% again. Credit spreads on high-yield debt made new swing cycle wides (did not hold teh dead cat bounce gains). Gold jumped back above $1310 (and on a separate note oil prices surged as "tanks" hit the headlines once again in Ukraine). But perhaps the most notable 'negative' for this being anything but a dead-cat-bounce was the collapse in JPY carry - USDJPY's biggest drop in 8 months. VIX was pegged to the S&P 500 all day - but even there we saw notable steepening (as hedgers termed out protection). S&P 500 futures close perfectly at yesterday's closing VWAP.
It took Virtu's idiot algos some time to process that the lack of BOJ stimulus is not bullish for more BOJ stimulus - something that has been priced in since October and which sent the USDJPY up from 97.000 to 105.000 in a few months, but it finally sank in when BOJ head Kuroda explicitly stated overnight that there is "no need to add stimulus now." That, and the disappointing news from China that the middle kingdom too has no plans for a major stimulus, as we reported last night, were the final straws that forced the USDJPY to lose the tractor-beamed 103.000 "fundamental level", tripping the countless sell stops just below it, and slid 50 pips lower as of this moment to overnight lows at the 102.500 level, in turn dragging US but mostly European equity futures with it, and the Dax was last seen tripping stops below 9400.
Dondero had quite a "track record" of illegal trading activity before he was finally busted for one last time engaging in HFT spoofing. However, it is not his FINRA brokercheck record that is of interest, but the fact that back in 2007, in the first ever CNBC Million-Dollar challenge, it was none other than Dondero who almost won. And yes, he nearly manipulated his way to the $1 million prize money then too. Only, the way he did fudged his winning percentage was not as most other competition participants had, by abusing the widely known system glitch that allowed contestants to see which stocks were rising in after-hours trading and then to buy those stocks at the lower, 4 p.m. EST closing price, but using a far more devious scheme. One which is reminiscent of the crime that last week just ended his trading career in the real world as well.
The Father Of High Speed Trading Speaks: "The Market We Created Is A Casino; A Complete Mess; A Rigged Game"Submitted by Tyler Durden on 04/07/2014 18:42 -0400
"I must confess to you that I was an ardent proponent of bringing technology to trading and brokerage. Unfortunately, I only saw the good sides. I saw how electronic trading and record-keeping could be used to force people to be more honest, to make the process more efficient, to lower transaction costs and to bring liquidity to the markets. I did not see the forces of fragmentation and the opportunity for people to use technology to keep to the letter but avoid the spirit of the rules -- creating the current crisis.... Technology, market structure, and new products have evolved more quickly than our capacity to understand or control them. ... To the public the financial markets may increasingly seem like a casino, except that the casino is more transparent and simpler to understand.... The result has been a series of crises over the past few years that have caused many investors to lose confidence or to think that the whole system is a rigged game."
Early hope faded into middle-of-the-day-despair which was rescued (briefly) on a sea of JPY carry (which dragged the S&P all the way to VWAP) then crashed and burned on the shores of dismal reality into the close. USDJPY was in charge and 103 was the magic number that kept the S&P 500 from breaking its 50DMA (for now). The Nasdaq and Russell were ugly as Biotechs' early ripfest gave way. This is the biggest 2-day swing lower in the Nasdaq since Oct2011. Treasuries rallied modestly on the day (-2bps) as the USD weakened 0.25% led by EUR strength. Copper rallied from an overnight dump low but gold (~$1300), silver (~$20), and oil (~$100) all clustered around -0.5%. VIX tested up to 16 intraday but was rammed lower as the 330 ramp too early to hold and merely enabled VWAP sellers out... and we closed near the lows...
The blog posts and defenses of high frequency trading in the past week have come with dizzying high frequency. Flash Boys has struck many a nerve; the truth can be a bitter pill at times. And of course, the pro-HFT defenses are all made by many who are very, very staked in the status quo of our market structure. Now, bloggers using twitter is one thing; conflicted insiders using television to make their HFT defenses are another.
Guess what? There is none. Rather, the Federal Reserve practice of Delphically divulging its intentions ought to be understood as the master pretense of US economic life — the delusion that wise persons are actually in control of anything. The result of this guidance continues to be the mis-pricing of everything, especially the cost of money as represented in the operations of debt, and hence the value of everything denominated in money. One thing we really do know, as good old Herb Stein put it, is that things go on until they can’t, and then they don’t.
Well that didn't take long... Friday morning's post-payrolls record all-time high in the S&P 500 (because, as Steve Liesman said, "he can't find any reason to be bearish about jobs data") has rapidly collapsed to being negative year-to-date (and worst start to a year since 2009's crash). Only the Transports remain green in 2014, with the Dow, Nasdaq (worst start to a year since 2008), and Russell all coincidentally gathered around a 2% negative return YTD.
UPDATE: V-shaped recovery in stocks as 103 USDJPY marks line in the sand...
BTFD failed and momentum has broken. Growth stocks and Biotech dreams are lying shattered in a pool of margin calls once again this morning. Nasdaq being dragged by another more-than-1% drop in Biotechs (now negative year-to-date) and nearing the 20% high-to-low drop of a bear market. Bonds are bid as JPY carry unwinds drag broad US equity markets lower... The USD is weaker (led by EUR strength) and precious metals are down modestly (gold at $1300)
In the aftermath of Michael Lewis' book "Flash Boys" there has been a renewed surge in interest in High Frequency Trading. Alas, much of it is conflicted, biased, overly technical or simply wrong. And since we can't assume that all those interested have been followed our 5 year of coverage of a topic that finally has earned its day in the public spotlight, below is a simple summary for everyone.