New York Stock Exchange

The October Double Witch lit the match that precipitated the bulk of the 8.6% slide in the S&P 500 from its September highs.  Massive and unexplainable changes in open interest for the futures most of that week as well as an unusually large Market On Open imbalance for index expiration that morning hinted that the final days of the rally were artificial and susceptible for a sharp reversal. We have arrived at the third Friday in November licking our wounds after a precipitous drop in equities since the Election. Reminded of last month’s inflection point, traders, however, who have far better memories than given credit for, may expect something out of the ordinary especially with the curious drop in the VIX over the past several days albeit I chalk up this suppression of implied volatility to the selling of $6B in notional SPY puts centered on the 140-41 strikes.  On the other hand, one could easily argue that the critical 1350 level for S&P 500 options held up the market yesterday such that the removal of such a protective barrier could reengage the aggressive selling from the past two weeks.

As has been widely reported previously, while the NY Fed's deep underground gold vault remained dry during the Sandy flooding in downtown NY, one institution which got badly hurt was the DTCC, aka Cede & Co (profiled here in July of 2009 in " The Biggest Financial Company You Have Never Heard Of"), which is the entity serving as custodian of virtually every electronically traded security in the modern marketplace (equity, debt, derivative, synthetic, in fact anything which is not a physical asset in itself and is not in the hands, or safe, of the rightful owner). We put the emphasis on electronically, because DTCC is also the actual custodian of all physical proof of stock ownership, such as certificates, bond deeds, and the like. It is the largely irrelevant latter (because it has been several decades since anyone actually demanded a physical copy of the stock certificates backing their shares of company XYZ) that the DTCC got in trouble for when its securities vault got flooded, and in the process destroyed countless physical stock certificates. Note we did not use the word electronic because those are there and accounted for in numerous back up data sites, with full designation and attribution. In other words anyone who made a mountain out of this particular mole hill sadly has no idea how modern markets operate, since all that the DTCC needs to do to remedy the flooding damage is to notify transfer agents of this natural disaster, and then have duplicate stock certificates printed at a cost of 1 cent for every thousands or so print outs. Which is more or less what the DTCC also just said in its press release.

Until recently, the only question traders had to ask themselves was "how much more to buy?" The last week or so has left traders across the market now suddenly plagued by numerous questions. Will an Obama speech continue to be the catalyst for selling pressure to resume? Why is VIX 'low' when all around is asunder? When do the BTFD crowd step back in? Where's the 'wall of money' flowing now? From new issue demand to Italy's ratings agency trials and from bounce-buyers waiting for Godot to VIX's complacency, FBN's Michael Naso and Mint's Blain cover some of the conundra.

Totally doomed, I tell ya. 

If you still listen to your Brand Name sell side broker, do you deserved to be Grouponed? Is the term muppet an attack or a description? 

• The Bild is now a source for EURUSD stop hunts: Germany eyes 'bundled' loan payment to Greece-paper (Reuters, Bloomberg)
• Congress comes back Tuesday to confront “fiscal cliff.”  (Reuters)
• Gen. John Allen ensnared in Petraeus scandal (Politico)
• FBI Agent in Petraeus Case Under Scrutiny (WSJ)
• Comcast's NBCUniversal unit lays off 500 employees (Reuters)
• University Fees Stoke U.K. Inflation (WSJ)
• Consumers Closing Wallets in Japan Add to Noda’s Woes (Bloomberg)
• John McAfee Wanted for Murder... and explaining bathsalt anal suppositories (Gizmodo)
• Europe Gives Greece 2 More Years to Reach Deficit Targets (Bloomberg)
• Where Spain Is Worse Than Greece (WSJ)
• Microsoft's Windows unit head, once a possible CEO, exits (Reuters)
• Glitch stops NYSE trading in 216 companies (FT)
• Large European Banks Stash Cash (WSJ)
• The death of San Bernardino: How a vicious circle of self-interest sank California city (Reuters)
• Apple stores most productive US shops (FT)
• Treasuries See U.S. Falling Over Cliff as Yields Converge (Bloomberg)
• Bra-Bodysuits Make H&M One Hit Wonder as Zara Prospers (Bloomberg)

On this day (-1) in 1918, Pvt. Henry Gunther of Baltimore, Maryland thought he saw a suspicious movement in the German trenches across the way. Fearing that the "Huns" were using the mid-morning sun to get some territorial advantage while the peace talks dragged on, Gunther decided to rush the suspicious area. Henry was fast but unfortunately, not invisible. A single shot from a German rifle struck him in the heart and killed him instantly. The time was 11:01 a.m. just 1 minute after the war officially ended, making Put Henry Gunther the final casualty of World War I.

The slow data (and holiday) week will likely keep eyes focused on the 'fiscal cliff' supplying a stiff headwind to stocks as it only reminds investors of the peril which looms directly in front of them. One suggestion I could offer both sides of this debate to avoid any further damage is just to be quiet.  Stop making stump speeches.  We all know your views.  We all know how stridently you will defend them, but your incessant reminders that you have dug in your heels does no good regardless of the negotiating tactic.  Instead, hold a joint press conference and admit there are ideological differences, but announce that both parties will do their best to hammer out a deal palatable enough for everyone. Alas, this is wishful thinking.  As a result, anytime they open of their mouths, most notably Mr. Obama’s, the words they spew will cause damage to share prices. Unfortunately, the President’s drawing a line in the sand on Friday has guaranteed that a countless number of E-Mini bandits will short the futures in front of his speaking which will erode the conviction among managers trying to put money to work. Ironically, it may take an equity market in free fall that ultimately forces compromise.

We outline various fundamental and technical characteristics of each of the three stages of a standard rally such that one could use the blueprint in identifying an imminent top. The table below leverages statistics compiled from the prior decade from various selloffs (i.e. > 7%) which have produced consistent patterns that help traders ascertain the potential depth and duration of the current downward move.

Long Apple. 

A stock sell off is usually a healthy, cathartic thing: one sells, pockets the proceeds, books a loss, and comes back to fight another day. The big problem, however, is when speculators and traders are already massively overleveraged, and not only don't have a positive Net Worth (defined as Free Credit Cash Account and Credit Balances in Margin Accounts less Margin Debt) but their Margin Debt is so high it commences a toxic loop of selling merely to fund margin calls which usually start popping up in the last hour of trading (and when trading desks put their phones straight to VM), leading to more forced selling, more margin calls, and so on. And therein lies the rub: according to the most recent NYSE margin debt data, the market complacency recently hit such high levels, that speculators virtually went all in, but solely in their margin accounts without holding any cash buffer to pay for potential margin calls. As can be seen on the table below, Margin Debt as of 9/30 hit $315 billion: a jump of $30 billion from the prior month, and the highest since March 2011, just before the market tanked. And confirming that there is simply no cash on hand to pay for margin calls when they start pouring in after today's massive sell off, is the total Net Worth, which in September was the lowest since April. Because with record complacency, and the Fed guaranteeing no further shocks are possible, who needs to hold cash? Today, we will find out: just as soon as the margin calls start coming around around 3PM Eastern...

Today doesn't matter. Tomorrow won't matter either. 

A company whose earnings rely upon the increase in debt of a severely over indebted nation, with the word "Fair" in its name sounds like a jonx to me...

Please, point me to the floor.