NASDAQ

Maybe it is the activity in Europe that made the markets feel more volatile than the weekly changes show. Or maybe it was that the futures traded in an almost 3% range – from 1,359 to 1,390 with several 0.5% swings during the course of most days. Market darling Apple isn’t helping calm the market either. That can reverse on a moment’s notice, or a great earnings release, but the momentum that was dragging more and more hedge funds into the trade, is now working in reverse as stop losses are being triggered. So often lately, the bulls are able to point to a decent tape in face of weak data and no stimulus, and this week ended with the opposite. Bulls will be nervous that decent earnings and a mega-plan from the IMF failed to provide strength to the market. So, it was a strange week that was more volatile than the weekly changes show, and where some real cracks are being exposed.

Take your pick of how to describe this week's action. The Dow was green, S&P 500 unch (ES closed right at its 50DMA), and NASDAQ down for its biggest 2-week loss since the rally began. Heavy volume and incessant selling pressure pushed AAPL to its biggest 10-day loss in over 8 months as it closed at 5-week lows just shy of filling the gap from 3/13 and very close to testing its 50DMA for the first time in 4 months. Credit and equity markets generally did a round-trip today closing near their lows after opening the day-session near their highs off the ubiquitous overnight ramp. HY is practically unchanged on the week as IG saw up-in-quality rotation and outperformed while the S&P ended in between the two as they all traded in a broad range for the second week in a row - even though volatility remains intraday. Treasuries slid to their lowest yields of the day into the close today (though off the week's best and unch today) once again somewhat range-bound but with a notable falling-yield momentum down a few bps on the week with the long-end outperforming and 10Y closing under 1.96%. Copper and Oil rallied solidly today but aside from a little volatility Gold and Silver trod water ending the week with Gold -1% and Silver +0.55% as WTI ended back over $104. The EUR kept rallying all week (more repatriation flows?) dragging the USD lower as JPY underperformed on the week (flat today as the rest of the majors tracked USD weakness) and GBP outperformed. Broadly, the Treasury strength balanced the Oil and FX market risk-on-sentiment but risk-assets proxied higher into the US day-session open only to give it all back and drag stocks back down. It feels like there is still hope for some re-liquification but the weakness in AAPL and the financials suggest at best rotation and at worst steady risk-off while earnings beats (of drastically lowered expectations) keep the dream alive.

The Apple trade works until it doesn't. The exit door may get quite crowded!

NASDAQ managed its largest gain in four months as Apple came back into vogue and saved the day. The equity indices were alone in their magnificent exuberance after the European close as Gold, Treasuries, and the USD all tracked sideways in a very narrow range. As we have been warning, the mania is back in equity (and credit markets but less so) as April has now seen six of the last nine days swinging between 2 sigma gains and 2 sigma losses (for the NASDAQ). Volume was average today in ES (the S&P 500 e-mini futures) and NYSE (stocks) but high in Apple's equity and options markets as the schizophrenic behavior pushed the stock from under $572 at the open to almost $610 by the close (though notably stuck between Friday's close $605.19 and its closing VWAP at $610.74). The last day to fund your IRA combined with tomorrow's VIX futures/options expiration likely helped some of this momentum (as we note VIX is about 1 vol higher than it was when the S&P closed at these levels on Friday). Just as in Europe, credit markets were simply not as enamored with the Spanish auction or Apple's awesomeness as equities and drifted sideways to weaker all afternoon (with some late-day weakness in HYG as it starts to fall back towards its NAV). Financials and Materials lost some ground into the close and ES gave all its post-Europe-close gains back as volume and trade size picked up significantly at last Thursday's swing highs (near pre-NFP levels again). The Treasury complex saw all its 'losses' in the early going and went sideways in an extremely narrow range for much of the US day session - ending the day slightly higher in yield (0.5-1.5bps) on the week. Commodities surged early on as the USD slipped but drifted back from mid-morning on (except WTI which broke above $105 (ended above $104) for the first time in 2 weeks. Gold and Silver nose-dived right after the US open only to recover it all by the European close. EUR strength (and USD weakness) occurred early this morning on the Spanish auction and aside from a rip in CAD the rest of the day was relatively tight ranges with a very small drift higher in DXY. All-in-all, it seemed like an oversold snap that saw opportunistic sellers coming in at the end as average trade size surged and ES closed back above its 50DMA again - echoing last week's mania and worryingly raising realized vol for all those hopes and dreamers. Equities look over-their-skis again relative to risk assets in general.

All you need to read and more.

Amid the fourth heaviest volume of the year, Apple shares fell over 4% today - its largest single-day drop in six months (and largest two-day drop in 23 months) and GOOG also fell over 3%. This dragged the NASDAQ down but the S&P 500 (which was implicitly hurt by this major underperformance) managed to survive with relatively minimal damage close-to-close as the EUR repatriation drove TSY yields up and the USD down with correlations doing the rest to support stocks. Heavier volume and trade size came in as ES (the S&P 500 e-mini future) slid notably into the close though - almost 10pts off its afternoon highs and over 1% off its day-session opening levels (which were the highs). USD weakness accelerated rapidly after the European close - quite evenly distributed across all the majors but EUR weighed heavily as it retraced most of Friday's losses. The USD selling stopped around 130pm ET. The USD weakness supported some recovery from early weakness in commodities but the second largest compression in Brent-WTI in 16 months to around $15 - led by Brent more than WTI - on the Seaway reversal date being brought forward, was the biggest news in commodities. Silver ended unch and gold down modestly. Credit outperformed stocks on the day (and from open-to-close) but this seems as much credit-equity index arb as credit remains notably weaker. HYG stayed in sync with SPY today after we first noted the convergence on Friday (following the April asset allocation shift). After rallying early, Treasuries stabilized through the USD selling frenzy immediately post-European close but as the USD stabilized in the late afternoon (and AUD weakened) so Treasuries were oddly sold off (along with stocks) ending the day basically unchanged (after being lower by 4-5bps before the US open). VIX closed unchanged after opening lower and pushing to well over 20% at its worst - as 19% seemed to support it as we rallied in the afternoon. ES tested above its 50DMA once again and closed back below it on a relatively heavy day with very low average trade size.

The "value" of insurance is not always apparent until after the house burns down.

Volatility is back. The S&P moved more than 1% on 4 of the 5 days, had the biggest down day of the year, and even the least volatile day was a 0.7% move.

"All might be well in China, but Europe again is a cause for serious concern. Spain is the victim of the most intense violence – CDS trades to new all-time wides, and local banks sent nearly 5% lower. The hope might have been that once European markets closed, US equities would recoup losses. But there’s no place for hope on Friday the 13th, and stocks close at the low. The post-close price action in futures was even worse as ES1 drops further still. Back below the 50d again. Perhaps spillover from weakness in European financials, but problematic as tech, the other obvious leader of the year’s rally, is also flagging. SPX drops 17 to close 1370 (-1.25%). The DOW drops 137 to close 12850 (1.05%). The NASDAQ drops 44 to close 3011 (-1.45%)."

The headlines flow in:

• GOOGLE 1Q REVENUE $10.65B
• GOOGLE 1Q REVENUE EX TAC $8.14B, EST. $8.14B
• GOOGLE 1Q ADJ. EPS $10.08, EST. $9.64
• GOOGLE 1Q PAID CLICKS ROSE 39% VS YEAR AGO
• GOOGLE 1Q TRAFFIC ACQUISITION COSTS $2.51B
• GOOGLE 1Q COST PER CLICK DOWN 12%

The Apple trade, it works very well... util it doesn't. What happens when ALL of those funds change course???

Late last year, I paid a visit to Josh Brown ("The Reformed Broker") and had a pleasant chat. I went to his blog a week later and put up a comment, shown below, stating my belief that Facebook's IPO day would mark an important turning point in the market.

Since Goldman continues to press clients into the worst trade recommendation in the firm's history (remember that once in a lifetime long equity, bond short? no? look here) it means that at least the Goldman version of Bruno Iksil who sits on the firm's prop desk (but only hedge for god's sake, don't go getting any ideas) is having a great time since he is on the other side across from Goldman's clients. Still, while we won't feel bad for them, it is always interesting to note what are the things that Goldman watches for during market wipe outs, such as today, the worst day of trading so far in 2012. So without further ado, here is Goldman's Tuesday roundup.

Treasuries vs. Stocks (for now)

It's hard being a bear, except this week wasn't so bad.