As Monty Python might have said, apart from AAPL; what has the market done for you today? S&P 500 cash managed (somehow) to cling to a green close while the Dow and Nasdaq ended red. Critically - markets went only one way all day - from upper left to lower right as we go out at the lows of the day - back again at the Draghi cliff edge and just below pre-QE levels. AAPL was a disaster - on heavy volume - as it pushed back down towards it 100DMA (over 3% from its opening highs today!) ending at its lowest in two months with its biggest slide in 5 months (last 14 days). Risk-assets in general tracked closely as while AAPL slide from the open, equity indices manage to hold opening gap gains until Europe closed and then it went pear-shaped. The USD slid all day but didn't 'help' stocks as JPY weakened more (carry offsetting). Treasury yields plunged - 30Y now down 12bps on the week. Commodities all gained on the day - led by Oil (with gold/silver lagging). Meanwhile VIX ignored the debacle, gapping lower at the open and holding down 0.7vols at 15.6% as HYG handily outperformed on low volume.
UPDATE: Behold the massive bid in VIX futures at the close (after being held down all day as stocks slumped)
The S&P 500 futures (ES) dropped from the opening whistle, bounced a little, then fell all the way down to pre-FOMC levels and then wriggled sideways auctioning in a narrow range for the rest of the day after Europe closed. The Dow and S&P are now red for the month with their biggest 3-Day drop in almost three months as the 50DMA comes back into view. Oil prices surged early on but as the selling came in stocks so oil fell back under $92 dragging the Energy sector lower (as CVX's chicken-and-egg with oil and its outlook continues). All S&P sectors were red on the day but financials outperformed (-0.06%) along with Utilities. Stocks ended just off their lows (as CNBC is so happy to tell us) but Treasury yields closed at their lows - tumbling over 7bps from the 10Y auction. The USD (and gold and silver) were dead today amid all the chaos - with a slight gain in silver and the USD limped lower from a better start. Gold remains -1% on the week. The Russell and Nasdaq are now the worst performers post-QE (-4.4%) while Dow Transports are -4% (and Dow/S&P down around 2%). VIX trod water with a small compression into the close - ending around 16.3%. IG credit outperformed as HY tracked stocks lower.
Still long-term bullish as nobody notified us that the Fed has withdrawn QE3.
Eerily quiet after yesterday’s post-ECOFIN cacophony…
No real take-away today: sometimes you need a breather and everyone agrees.
UPDATE: AA earnings beat, missed, won, lost, with forecasts up and down... facts below!
From the close after the Fed's QEternity announcement, it may surprise some that the Russell 2000, Nasdaq, and Dow Transports are all down 4%. S&P futures have retraced all of last week's gains, dropping the most in over week amid significant volume. AAPL dumped to its 100DMA, bounced, failed to break yesterday's VWAP close, then tumbled back to today's VWAP for another down day. VIX popped the most in 2 weeks (up over 1.2 vols) to end at 16.2%. From the 9/14 peak in stocks, only Healthcare is in the green, with Energy/Tech/Materials down around 5%. Oil jumped higher (up 3% on the week) in the face of USD strength that weighed a little on the rest of the commodity sector.
With bond-traders amiss - no doubt all celebrating the indigenous people of our great nation - volumes were dismal and so was any evidence of a BTFD mentality in risk. AAPL, amid the biggest three-day slide in almost six-months, saw pullbacks to VWAP sold immediately (signaling more institutional biased selling) ending very close to a 10% correction from its highs. This weighed on Tech (obviously) which was the worst performing sector and dragged Nasdaq (and the S&P) lower. In general equities stayed in sync with risk-assets on the day (we note that TLT's move implies around a 4-5bps compression in yields at the long-end of the Treasury curve) though the lack of liquidity made the relationships noisy. Low volumes, low range, a premature ramp in the last hour that gathered no momentum left S&P futures having retraced 50% of their low-to-high swing of last week. Gold and Oil decoupled early then recoupled late, ending the day down but outperforming the implied weakness from USD strength (EUR weakness balanced JPY and AUD strength on the day). Copper and Silver ended the day down 1.4%. VIX 'outperformed' equity weakness and pushed a notable 0.8 vols higher back over 15%.
Some correction of Friday’s Bull trap: European Risk Off, EGB credit torsion and weaker equities.
Doubtful whether any fireworks will come out of the ECOFIN meeting.
Seems to be more about maintaining the relative market quietness and status-quo.
It will come as no surprise to any ZeroHedge readers but High Frequency Trading (HFT) deeply concerns Erik Hunsader, founder of Nanex. He worries that today's investors, our regulators, -- heck, even the HFT algorithms themselves -- don't fully understand the risks market prices face in the brave new era of bot-dominated trading. For instance, Hunsader estimates that HFT algorithms are responsible for 70%(!) of all completed transactions on our exchanges, and for 99.9%(!!!) of all exchange quotes. The pictures of trading floors you see on TV, where the people in bright jackets appear frantically busy in making their trades, have no bearing -- claims Hunsader -- on the actual trading action. The real action happens across fiber-optic cables, on racks of servers in cooled rooms; where an arms race defined by cable length and switching speeds is being waged. The reality is that the machines have taken over.
While Europe was ripping higher this morning, commodity prices were slipping quietly lower and Treasury prices higher as the USD was very modestly higher and US equity futures were treading water. The payroll print provided the fuel to pump us up to within a tick of the year's highs in the S&P, smashed the USD weaker, twanged Treasury yields higher and sent Financials and Materials zooming higher. Unable to break those record highs, stocks reversed as Energy (Oil was sliding once again) and Tech (AAPL) led them lower. Within a few hours we had retraced the entire NFP spike in FX and equity markets but Treasury yields kept pushing higher (30Y +14bps on the week). Gold closes green on the week while Oil/Silver/Copper were red as the AUD lost almost 2% against the USD and EUR gained 1%. AAPL tumbled 2%, closing below its 50DMA for its biggest 2-week slide in six months. VIX was jabbed under 14% briefly but ended fractionally lower on the day at 14.4% (-0.2vols). Equities and risk-assets disengaged today and equity's inability to manage a late-day ramp (and AAPL closing at lows) must be a little concerning for the cheerleaders.
Threaky Thursday. Oil perfectly round-tripped its plunge from yesterday (ending back above $91.50) as Treasury yields caught 'up' to equity strength on the week. USD weakness was a one-way street of straight-line trend from 0500ET in EUR today - until the Fed minutes broke something. Gold and stocks continue their synchronized lift - though gold is still the clear winner post QEternity. Trannies outperformed again but the day-session in the Dow and the S&P were largely treading water - after the factory-order-driven stop run surge this morning. Meanwhile, all those front-running winners in MBS land have seemingly started to unwind - as mortgage spreads have retraced post-QEternity gains quite significantly (which is likely what helped Treasury yields higher today - though the convergence to risk also helped). The ubiquitous 3ET AAPL ramp was modestly front-run and epically failed as the stock-that-shall-not-be-named closed red with a $666 handle once again with some major volume at the close. VIX was solidly banged lower right at the close (coinciding with AAPL's high volume action) to end at 14.55 (down 0.88vols) in line with the S&P.
- Romney dominates presidential debate (FT)
- What Romney’s Debate Victory Means (Bloomberg)
- Obama Lead Shrinks in Two Battlegrounds (WSJ)
- "Everything will fall apart unless the Spanish conditions are extremely tough" German policy-maker (Telegraph)
- Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
- RBS facing loss after Spanish property firm collapse (Telegraph)
- Burdened by Old Mortgages, Banks Are Slow to Lend Now (WSJ)
- The Woman Who Took the Fall for JPMorgan Chase (NYT)
- European Banks Told to Hold On to $258 Billion of Fresh Capital (Bloomberg)
- Europe Weighs More Sanctions as Iran’s Currency Plummets (Bloomberg)
So the Fed is pinning its hopes on stimulating the economy via the wealth effect again, as it did when it revived the post-tech-wreck asset bubble in housing and credit in that now infamous 2003-07 period of radical excess. But here's the rub. While there is a wealth effect on spending, the correlation going back to 1952 is only 57%. But the correlation between spending and after-tax personal incomes is more like 75%. The impact is leagues apart. And that is the problem here, as we saw real disposable personal income decline 0.3% in August for the largest setback of the year. The QE2 trend of 1.7% is about half the 3.2% trend that was in place at the time of 0E2. Not only that, but the personal savings rate is too low to kick-start spending, even if the Fed is successful in generating significant asset price inflation. The savings rate now is at a mere 3.7%, whereas it was 6% at the time of QE1 back in 2009 and over 5% at the time of QE2 2010 — in other words, there is less pent-up demand right now and a much greater need to rebuild rather than draw down the personal savings rate. This is a key obstacle even in the face of higher net worth.
In April of 2009 we warned very explicitly that reliance on the fake "liquidity" (which was never liquidity per se but merely volume and churn) by the HFT algos that stuff quotes, frontrun each other, spoof, layer, and generally make a mockery out of the thing fomerly known as the market (which is now more than anything a policy vehicle for central planners but that's a different story) would result in tears. A year later the first flash crash happened, and ever since then more and more people have finally realized how our 3+ year long crusade against HFT (which sadly is now a minor distraction against the far greater evil which is central bank dominance of capital markets) was spot on, confirmed by the recent segments (here, here and here) on CNBC which effectively confirmed the markets are not only a joke, but without any real depth, i.e. fake. What is amusing is that people still don't understand why the exchanges, and the regulators (coopted by the exchanges) allow HFT to continue. Here is the answer: in 2011 the CME made 31.5% of all its revenues from HFT, the ICE: 25.1%, the NYSE: 21.4%, the Nasdaq: 17.1%, the CBOE: 22.4%, and so on.
Wow! Good equity swings in Europe: Down about 1% to the morning lows, up nearly 2% to noon highs and tanking back over 1.25% into the close.
Core & Soft EGBs rather muted in volatility, closing by and large unchanged, with Periphery bonds running a separate path.
Again that decorrelation.
Jump, Jive & Wail…
Ending the day at the lows, AAPL's stock price traded with a truly demonic $666.66 after-hours. The reason for the last few days' weakness? Who knows when a bubble bursts but between its analog to MSFT's meteoric rise, the stocks' weight in the NASDAQ, 'disappointing' first-week sales, Cook's Maps FUBAR, supply-chain disruptions, or the market having to suddenly price in the arrival of the new Obama-phone, volumes have been picking up.